Post on 06-Apr-2023
Aligning Strategy Typology and Human Resource Management in
a Transitional Environment: The Case of Huabo Group
DAI Hepeng
Thesis submitted as partial requirement for the conferral of the degree of
Doctor of Management
Supervisor:
Prof. Ma Shaozhuang, Associate Professor, ISCTE University Institute of
Lisbon
Co-supervisor:
Prof. SHAO Yunfei, Professor, University of Electronic Science and Technology
of China, School of Management and Economics
May, 2018
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Aligning Strategy Typology and Human Resource Management in
a Transitional Environment: The Case of Huabo Group
DAI Hepeng
Thesis submitted as partial requirement for the conferral of the degree of
Doctor of Management
Jury:
President: Professor Sílvia Silva, Associate Professor, ISCTE-IUL
Professor Ma Shaozhuang, Associate Professor, ISCTE-IUL
Professor Xiao Wen, Associate Professor, UESTC, China
Professor Li Ping, Professor, UESTC, China
Professor Wang Jincheng, Vice Rector of International School of Business and Director of Confucius
Institution of University of Lisbon, Tianjin University
May, 2018
Abstract
In a transitional society like China, it is a challenge to align an enterprise human resource
management with its strategy while adapting to a dynamic external environment. There is
limited studies in this regard, particularly on how private enterprises may align human resource
management with strategy typology in a changing environment of emerging economy. Guided
by the theoretical framework of strategy typology and human resources management alignment
proposed by Miles and Snow (1984), this study investigates Huabo Group, a pharmaceutical
distribution firm in Chongqing of China as a case study because this firm has developed and
grown in a very dynamic, complex and hostile environment due to the rapid change of Chinese
pharmaceuticals industry. Thus it provides a very illustrative sample to examine strategy
typology and human resources management alignment in emerging market like China.
Based on quantitative and qualitative data through survey and interview/focus group, this
study: (1) finds and justifies the prospector strategy of Huabo Group under transitional external
environment; (2) identifies and discusses the gaps and issues of aligning Huabo’s human
resources management and prospector strategy; (3) proposes strategies to improve its human
resources system to better align and support its strategy for the enterprise sustainable growth in
a rapid changing environment. The study provides an illustrative case from Chinese
pharmaceuticals industry to manage the challenges of aligning human resource management
with organizational strategy while adapting to external environment in emerging economy, thus
enriching theoretical literatures. The research results provide valuable reference for similar
enterprises to give consideration to human resources management alignment during strategy
adjustment under rapid changing emerging market like China.
Keywords: Strategy Typology; Human Resource Management; Alignment of Strategy and
Human Resource Management, Chinese Pharmaceutical Industry
JEL:M50; M19
Resumo
Numa sociedade em transição, como a chinesa, alinhar a gestão de recursos humanos de
uma empresa com a sua estratégia e em simultâneo adaptar-se ao ambiente dinâmico externo
constitui um desafio. A investigação sobre este assunto tem sido limitada, especialmente sobre
como as empresas privadas podem alinhar a gestão de recursos humanos com uma tipologia de
estratégia num ambiente mutável de uma economia emergente. Guiado pela matriz teórica da
tipologia estratégica de Miles e Snow (1984), este estudo investiga o Grupo Huabo, uma
empresa de distribuição farmacêutica em Chongqin na China, tomando-o como um caso de
estudo por esta empresa se ter desenvolvido e crescido num ambiente hostil, complexo e muito
dinâmico devido às rápidas mudanças na indústria farmacêutica chinesa. Desta forma, constitui
um caso muito ilustrativo para examinar o alinhamento entre a tipologia estratégica e a gestão
de recursos humanos num mercado emergente como o da China.
Com base em dados quantitativos e qualitativos decorrentes de questionário e
entrevistas/grupos focais, este estudo: 1) descobre e justifica a estratégia prospetora do grupo
Huabo no quadro de um ambiente externo em transição, 2) identifica e discute as discrepâncias
e os desafios de alinhar a gestão dos recursos humanos da Huabo com a estratégia prospetora,
e 3) propõe estratégias para melhorar o seu sistema de recursos humanos com vista a um melhor
alinhamento e apoio estratégico que favoreça o crescimento sustentável da empresa num
ambiente em mudança rápida. O estudo faculta um caso ilustrativo da indústria farmacêutica
chinesa para gerir o desafio do alinhamento da gestão de recursos humanos com a estratégia
organizacional no quadro da adaptação a um ambiente externo numa economia emergente,
assim enriquecendo a literatura teórica. A investigação constitui uma referência útil para
empresas similares que queiram considerar o alinhamento da gestão de recursos humanos
durante o ajustamento estratégico em condições de mercado emergente em rápida mutação tal
como o da China.
Palavras-chave: Estratégia corporativa; Gestão dos recursos humanos; Correspondência entre
gestão dos recursos humanos e estratégia corporativa; Indústria farmacêutica na China
JEL:M50; M19
摘 要
本文以 Mile & Snow (1984)提出的战略与人力资源管理匹配的理论框架为指导,以
重庆华博集团为例研究在转型环境下企业战略与人力资源管理的匹配。
基于访谈,小组焦点座谈(Focus Group)和问卷调查所获得的研究数据,本文得
出以下结论:1)华博集团医药业务采取领先者战略类型及此战略选项的战略理论逻
辑;(2)明确华博领先者战略与人力资源管理各个核心功能模块在匹配方面存在的问
题;(3)为提高人力资源管理体系以匹配公司战略提出具体的改善策略。
本研究以个案研究的方式深入地剖析了在中国这类新兴经济体急剧变化的外部环境
下,民营企业如何因应外部环境调整战略的同时并兼顾人力资源管理匹配性以取得可
持续发展,丰富了现有以定量研究为主的理论文献。此外,本案例也为类似企业的战
略管理和人力资源管理匹配实践提供了有价值的参考。
关键词: 企业战略;人力资源管理;人力资源管理与企业战略匹配;中国医药行业
JEL 分类号:M50;M19
Acknowledgments
At the end of this thesis, first, I would like to express my great respect and deepest thanks
to Instructor Shao Yunfei and Ma Shaozhuang for their meticulous scholarship and noble
character that benefit me a lot in the learning process. Then, I would like to appreciate my
families and colleagues for their great expectations, love and care. Finally, I would like to thank
my classmates and friends for their help in the whole learning and thesis research process and
also Professor Wen Shouxun and classmate Du Yuqi in School of Economics and Business
Administration of Chongqing University for their help with this thesis. I’m filled with gratitude
for their sincere help and care. No words can adequately express my gratefulness. I can only try
my best to live up to their expectations in the future.
致 谢
在论文即将完稿之际,我想首先对我的指导老师邵云飞和马绍壮致以崇高的敬意
和最深的感谢,他们的治学严谨与高尚品德让我在这段学习过程中受益匪浅。其次我
要感谢对我寄予厚望和无私关怀的家人、同事们。最后,感谢在整个学习和论文研究
期间给我帮助的同学和朋友,以及重庆大学经济与工商管理学院的文守逊老师和杜雨
祺同学给予本论文的帮助。各方关切,难以回报,感激之情,无以言表,我将在以后
的工作和生活中更加努力,不负厚望。
I
Contents
Chapter 1: Introduction .............................................................................................................. 1
1.1 Research background ........................................................................................................... 1
1.1.1 Industrial background ........................................................................................................ 1
1.1.2 Theoretical background ..................................................................................................... 3
1.2 Research objectives and questions ....................................................................................... 5
1.2.1 Research objectives ........................................................................................................... 5
1.2.2 Research questions ............................................................................................................ 6
1.3 Structure of the thesis ........................................................................................................... 6
1.4 Technical roadmap of the study ............................................................................................ 7
Chapter 2: Literature Review and Theoretical Framework ........................................................ 9
2.1 Strategy ................................................................................................................................. 9
2.1.1 Strategy and its typology ................................................................................................... 9
2.1.2 The theory of competitive advantage and resource of enterprise .................................... 15
2.2 Strategic human resources management ............................................................................ 17
2.2.1 Strategic human resources management ......................................................................... 17
2.2.2 Strategic human resources role and framework .............................................................. 20
2.3 Strategy and human resources management alignment ..................................................... 25
2.3.1 Research on strategy and human resources management alignment .............................. 25
2.3.1.1 Strategy typology proposed by miles and snow and human resources management
alignment .................................................................................................................................. 27
2.3.1.2 Strategy and human resources management alignment proposed by Schuler.............. 28
2.3.2 Chinese researches on corporate strategy and human resources strategy alignment ...... 33
2.4 Summary ............................................................................................................................ 35
Chapter 3: Pharmaceutical Distribution Industry and Huabo Group ....................................... 37
3.1 Pharmaceutical distribution industry in China ................................................................... 37
3.1.1 General introduction ........................................................................................................ 37
3.1.2 Recent development of Chinese pharmaceutical distribution industry ........................... 38
3.2 Overview of Huabo Group ................................................................................................. 46
II
3.2.1 Introduction of Huabo Group .......................................................................................... 46
3.2.2 Current status of Huabo Group ....................................................................................... 49
3.3 Pharmaceutical business strategy of Huabo Junwei ........................................................... 52
3.4 Human resource management in Huabo Group ................................................................. 57
3.4.1 Background of human resource management in Huabo Group ...................................... 57
3.4.2 Current status of human resources in Huabo Group ....................................................... 58
3.5 Summary ............................................................................................................................ 61
III
Chapter 4: Research Design and Methods ............................................................................... 63
4.1 Case study method ............................................................................................................. 63
4.2 Interview and focus group .................................................................................................. 64
4.2.1 Sample selection .............................................................................................................. 64
4.2.2 Interview and focus group ............................................................................................... 64
4.2.3 Interview process ............................................................................................................. 67
4.2.4 Data analysis from interview and focus group ................................................................ 70
4.3 Questionnaire method ........................................................................................................ 70
4.3.1 Questionnaire design ....................................................................................................... 70
4.3.2 Questionnaire contents .................................................................................................... 70
4.3.2.1 Measurement of strategy category ............................................................................... 70
4.3.2.2 Measurement of human resource management ............................................................ 72
4.3.3 Collection of questionnaire data ...................................................................................... 72
4.3.3.1 Data collection .............................................................................................................. 72
4.3.3.2 Description of questionnaire samples .......................................................................... 72
4.4 Validity and Reliability ....................................................................................................... 75
4.5 Summary ............................................................................................................................ 76
Chapter 5: Strategy and Human Resources Management Alignment Analysis in Huabo Group
.................................................................................................................................................. 77
5.1 Analysis of interviews information .................................................................................... 77
5.1.1 Strategy of Huabo Group ................................................................................................ 77
5.1.2 Alignment status of strategy and human resource management of Huabo Group .......... 78
5.1.2.1 Human resources planning ........................................................................................... 79
5.1.2.2 Staff recruitment and selection ..................................................................................... 80
5.1.2.3 Staff training and development .................................................................................... 80
IV
5.1.2.4 Performance appraisal .................................................................................................. 81
5.1.2.5 Remuneration ............................................................................................................... 81
5.1.2.6 Staff promotion............................................................................................................. 82
5.2 Survey results ..................................................................................................................... 84
5.2.1 Strategy type of pharmaceutical business in Huabo Group ............................................ 84
5.2.2 Practices of human resource management ...................................................................... 85
5.2.2.1 Recruitment .................................................................................................................. 85
5.2.2.2 Training and development ............................................................................................ 86
5.2.2.3 Performance appraisal .................................................................................................. 86
5.2.2.4 Compensation and incentives ....................................................................................... 86
5.2.2.5 Relationship of Huabo Group and its employees ......................................................... 86
5.2.2.6 Satisfaction, organizational commitment and intention to stay in Huabo Group ........ 87
5.3 Factors hinder the alignment of enterprise strategy and human resources management of
Huabo Group ............................................................................................................................ 88
5.3.1 Strategic orientation of Huabo Group ............................................................................. 88
V
5.3.2 Role of human resources in Huabo Group ...................................................................... 89
5.3.3 The alignment of strategy and human resources management of Huabo Group ............ 89
5.4 Causes for alignment issues of strategy and human resources management in Huabo Group
.................................................................................................................................................. 95
5.4.1 Human resources planning .............................................................................................. 95
5.4.2 Recruitment and selection ............................................................................................... 95
5.4.3 Training and development ............................................................................................... 96
5.4.4 Performance appraisal ..................................................................................................... 97
5.4.5 The unattractive salary .................................................................................................... 97
5.5 Summary ............................................................................................................................ 97
Chapter 6: Discussion ............................................................................................................. 101
6.1 Industry environment and strategic orientation ................................................................ 101
6.2 Alignment of strategy and human resources management in Huabo Group .................... 103
6.2.1 Human resources planning: analysis of the supply and demand of human resources to
attract right talents .................................................................................................................. 103
6.2.2 Recruitment and selection: strengthening talent introduction mechanism and improving
core competitiveness in the Group ......................................................................................... 104
6.2.3 Employee training and development: conducting specialized trainings and broadening
VI
promotion ladders ................................................................................................................... 107
6.2.4 Performance appraisal: establishment of comprehensive performance appraisal system
................................................................................................................................................ 109
6.2.5 Compensation and incentives: perfecting compensation and motivation system and
cultivating talents ................................................................................................................... 109
6.3 Summary .......................................................................................................................... 110
Chapter 7: Conclusion ............................................................................................................ 113
7.1 Conclusion ........................................................................................................................ 113
7.2 Contribution and implication ........................................................................................... 116
7.3 Research limitation and prospect ..................................................................................... 117
Bibliography ........................................................................................................................... 119
Appendix 1 Interview Outline of HR Management ............................................................... 131
Appendix 2 Statistics on Questionnaire Survey of HR Managers ......................................... 141
VIII
List of Tables
Table 2-1 Milestones of Strategic Management .................................................................. 9
Table 2-2 Business Strategies and Human Resources Managemant Systems .................. 15
Table 2-3 Human Resources Management Classification ................................................. 23
Table 2-4 Human Resources Frame Aligning with Strategy Type .................................... 29
Table 2-5 Human Resources Frame Aligning with Strategy Type .................................... 31
Table 2-6 Human Resource Management and Strategy Type Alignment ......................... 32
Table 3-1 Evolution History of Pharmaceutical distribution Industry .............................. 37
Table 3-2 TMT of Huabo Group ....................................................................................... 61
Table 4-1 Basic Information of Interviewees .................................................................... 66
Table 4-2 One-on-one Interviewee List............................................................................. 68
Table 4-3 List of Interviewee in Group Discussion .......................................................... 69
Table 4-4 Measurement Items of Human Resources ........................................................ 74
Table 4-5 Personal Information Statistics of Survey Respondents ................................... 75
Table 4-6 Validity and Reliability ..................................................................................... 76
Table 5-1 Summary of Interview Results .......................................................................... 83
Table 5-2 The Alignment Situation of Enterprise Strategy and Human Resources
Management of Huabo Group ........................................................................................... 94
X
List of Figures
Figure 1-1 Technical Roadmap ........................................................................................... 8
Figure 3-1 Sales Trends of Pharmaceutical Distribution Industry in Year 2012-2016 ..... 39
Figure 3-2 Number of Retail Pharmacies in Year 2013-2016 ........................................... 41
Figure 3-3 Percentages of Business Incomes of Pharmaceutical Wholesalers with
Different Scales in National Market .................................................................................. 43
Figure 3-4 Corporate Structure of Subsidiary Corporations in Huabo Group .................. 47
Figure 3-5 Distribution of Major Clients in Huabo Group ............................................... 50
Figure 3-6 Analysis of Pharmaceuticals Industry Related to Huabo Group ..................... 52
Figure 3-7 Organization Structure of Huabo Group ......................................................... 59
Figure 3-8 Organization Structure of B2C Platform of Pharmaceutical E-commerce
Enterprises ......................................................................................................................... 60
Figure 5-1 Stages of the Group ......................................................................................... 85
Figure 5-2 Proportion of Employee-Reported Strategy of Huabo Group ......................... 85
XII
List of Abbreviations
TMT Top Management Team
CSR Corporate Social Responsibility
PIMS Profit Impact of Marketing Strategy
SWOT SWOT: Strengths Weaknesses Opportunities Threats
MNC Multinational Corporation
PAP People's Armed Police
GSP Good Supply Practice
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
1
Chapter 1: Introduction
1.1 Research background
1.1.1 Industrial background
In the early days of People’s Republic of China since its founding in 1949, there was hardly
any sound public health system due to wars for years. During the planned economy, the country
was the natural and exclusive organizer of medical and health services. In this period, the actual
healthcare and medical payers in this period were enterprises, which means the enterprises
covered medical and health service for their employees, and sometimes, the enterprise-based
health services also covered employees’ families.
In 1978, the Third Plenary Session of the Eleventh Central Committee of the Communist
Party of China carried out the reform and opening-up policy. Then, China started to transit from
planned economy (an economic system in which the government controls and regulates
production, distribution, prices, and others) to market economy (resources allocation by the
market). During this period, policy background of Chinese medical health system has changed
a lot and traditional medical insurance system gradually lost its existence conditions. At the
beginning of 1980s, some areas started to reform the medical insurance system. For example,
only medical cost over a certain amount could apply for reimbursement in appropriate
proportions; set a fixed reimbursement amount for certain medical cost; and medical costs
reimbursement was combined with personal interests. Continuous exploration and development
of these reform practices provided good foundation for undertaking medical costs by employees
at the end, reflecting a transition stage from free medical services in planned economy to
partially charged medical services after the reform and opening up. On April 28, 1984, the
Ministry of Health and the Ministry of Finance jointly published the Notice on further
strengthening free medical service management, which promoted the reform of free medical
services. Local government first took action in the reform of medical service system mainly by
means of controlling medical costs through overall social planning and “comprehensive
arrangement for serious disease”. In April, 1996, the General Office of the State Council
forwarded the Suggestions about expanding pilot area for employee medical insurance system
reform, and conducted pilot work in a wider range. The price management of drugs started from
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
2
the formulation of Interim provisions for drug price management in August, 1996. At that time,
the main objective of drug price adjustment was to “reduce virtual-high prices of drugs and
alleviate the burdens derive from high drug costs”. In December, 1998, the State Council
clarified the overall goal, basic principles and general framework of medical insurance system
reform in the national working conference and required to establish a basic medical insurance
system covering all urban employees on a national scale in 1999.
The 2000s witnessed the profound reform of Chinese drug prices. On October 19, 2002,
the Central Committee of the Communist Party of China and the State Council issued the
Decision on further strengthening rural health work, requiring to “basically establish a
nationwide rural health service system and a rural cooperative medical care system which not
only satisfy requirements of socialist market economy system but also meet the status quo of
economic and social development in all rural areas by 2010” and the document also clearly
pointed out “to establish a new rural cooperative medical care system aiming at comprehensive
arrangement for serious diseases step by step”. As of 2006, China lowered drug prices in
succession for 23 times in a decade. However, “virtual-high price issue” of Chinese drugs still
needs to be settled thoroughly.
Since 2009, a new medical reform was formally launched, and corresponding supporting
reform measures were introduced successively. In 2015, Chinese government started to let
market decide drug prices and the government stopped to price drugs except for narcotics and
category I psychotropic substances, to improve the drug sales & purchase mechanism and set
reimbursement ceiling in medical insurance. However, in January, 2017, the Medical Reform
Office of the State Council and the National Health and Family Planning Commission among
other departments jointly issued a policy to promote the “Two-Invoice System” for drug
procurement, aiming to cut middleman or dealers in the distribution process in order to cut drug
costs. The “Two-Invoice System” means that invoices shall be issued when drugs are sold from
pharmaceutical factories to initial distributors and secondary invoices shall be issued when
drugs are sold from initial distributors to hospitals. And the number of initial distributors for
each type of drugs shall not be more than two in order to further lower virtual-high prices of
drugs and alleviate the burdens of high drug costs. From the perspective of policies, with
promotion of medical and health system reform, especially profound reform of drug pricing
mechanism, there is a download trend shown in the terminal market prices of drugs (especially
essential drugs and assigned drugs of medical insurance). This, to some extent, will make the
distributors difficult to increase prices for the drugs in intermediate distribution process. For
enterprises whose primary businesses are drug sale and distribution, along with national drug
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
3
pricing policy changes and drug price adjustment due to market competition as well as the
subsequent effect on drug sales volume, enterprises encounter huge difficulty to sustain in the
market.
In recent years, Chinese governments encourage merger and acquisition among enterprises
in pharmaceutical distribution industry, consolidation in the industry, reducing redundant
process and improving industry concentration in the provincial market, and attach importance
to resources and scale advantages. This set the main direction of centralized bidding policy in
pharmaceutical distribution industry. The implementation of medical insurance cost control,
bidding cost reduction, secondary bargaining and Two-Invoice System reduced the growth rate
of the whole pharmaceutical distribution industry, especially that the Two-Invoice System
implemented from 2017 makes it even more difficult for middle and small-sized enterprises to
survive in pharmaceutical distribution industry. Under the environment, faced with lower gross
profit rate and higher cost, pharmaceutical enterprises have to adjust their business strategy to
adapt to the changes of the industrial environment.
1.1.2 Theoretical background
According to the theory of corporate strategy, enterprise should consider dynamic and
unstable environment for its growth and development. It also should consider future
environmental changes for management. Thus enterprise managers need to research the
business environment, to correctly identify the enterprise development direction, and choose
suitable business domain, so as to grasp opportunities brought by external environment more
accurately and increase the adaptability of business activities to external environment. Then,
enterprise strategy can align with external environment to improve the organizational
performance.
Around 1980s, business environment changed significantly and intangible assets were
considered as the most important factor for enterprise to maintain its sustainable competitive
advantages. Along with the acute transformation of technology, economy and society, enterprise
experienced a lot of challenges in human resources management. These challenges mainly
include: (1) success in market competition, to a large extent, depends on reasonable allocation
of knowledge resources and the human resources occupy an increasingly important strategic
position in enterprise resources; (2) effective human resources management in enterprise has
become a strategic factor determining whether the enterprise is always proactive. Therefore,
enterprise must give human resources management the strategic function.
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
4
Therefore, enterprises should actively take human resources issues into consideration to
ensure that the human resource management align with enterprises strategy. For many
enterprises, the existing human resources management system is unable to fit in the newly
formulated strategy and a series of problems finally result in the nonalignment between
corporate strategy and human resources management.
In fact, as enterprise is a complex system, every strategy implemented by enterprise must
align, coordinate and cooperate with each other in order to truly achieve the expected results.
First, enterprise strategy is developed by staff and its implementation involves staff, too.
Therefore, on the one hand, during development of corporate strategy, the enterprise must take
the impact of existing human resources factors into consideration; on the other hand, during
implementation of enterprise strategy, it also needs to consider to what extent the human
resources can support corporate strategy. We can say that human resources management
determines success or failure of corporate strategy to a large extent. However, there is no best
human resources management as for enterprise. Instead, alignment and coordination of human
resources management and corporate strategy are what enterprise actually needs. Therefore,
enterprise needs to consider limitations of human resources management when developing
corporate strategy. In addition, human resources management shall be adjusted according to
corporate strategy, instead of remaining unchanged. How to achieve human resources
management and corporate strategy alignment has become an important topic of universal
concerns by Chinese enterprise leaders and managers.
In summary, enterprise strategy shall be adapt to the external environment, and human
resources management is of significant importance to enterprise performance. However, most
existing researches focus on alignment of individual corporate strategy with environment or on
relationship of human resources and enterprise performance, and only limited literatures focus
on alignment of human resources management and enterprise strategy. And among these studies,
few of them are on pharmaceutical distribution industry. Therefore, under the context of
Chinese pharmaceuticals industry reform which result in dynamic changes for the sector, this
study will explore how Huabo Group, a Chinese pharmaceutical distribution company adapt its
strategy to the changing environment and more importantly to examine the alignment of its
human resource management system with its strategy typology in the process of enterprise
adapting to challenges of external environment, thus providing new perspective and helpful
supplement for related researches.
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
5
1.2 Research objectives and questions
1.2.1 Research objectives
As discussed above, Chinese pharmaceutical distribution industry is experiencing a series
of reforms. The government implements many new medical reform policies and proposes new
management standards for pharmaceuticals industry (e.g. “Two-Invoice System”), changing the
traditional business purchase and sale services as well as profit models of the pharmaceutical
distribution industry. Government requirements such as lower essential drug prices and strict
supervision on pharmaceutical distribution enterprises in the new medical reform policies
greatly reduce the profit margin of pharmaceutical enterprises. And this situation makes many
of them unable to continue their business operation. Chinese pharmaceutical enterprises are
facing great pressures from economic transformation under rapidly changing environment.
Dynamism, complexity and hostility of external environment in emerging economy like China
set high requirements for enterprise strategic management (Justin & Litsschert, 1994) by
grasping opportunities from external environment, effectively recognizing external threats and
adjusting enterprise strategy accordingly. Pharmaceutical distribution enterprises have to
correctly analyze the policy orientation for medical reform and take measures such as
consolidation and merger, focus on concentrated and differentiated fields of drugs, and
“Internet+pharmaceutical distribution enterprises”, to improve business practices to ultimately
satisfy market demands in a better way and achieve healthy and rapid development . Therefore,
on the one hand, the pharmaceutical distribution enterprises need to respond to the opportunities
and threats brought by the reform and transformations in the sector by adjusting strategies; on
the other hand, they need to effectively integrate internal resources to match with and support
enterprise strategy to improve competitive advantages.
Founded in 2002, Chongqing Huabo Pharmaceutical Group has developed into a leading
pharmaceutical distribution enterprise in Chongqing region along with the growth of Chinese
pharmaceutical distribution industry. In recent years, Huabo Group has also realized the
changes in industry and adjusted its corporate strategies. Therefore, Huabo Group is taken as
the case target in this study. The main objectives of this study include: 1) theoretically, to
provide research results from Chinese enterprise on alignment of organizational strategy and
human resources management to enrich literatures on this topic. As a rapidly developing
country, China’s economic conditions and enterprise practices provide a good context for
researches on alignment of strategy and human resources management. 2) Practically, on the
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
6
one hand, through exploring strategy typology and investigating the alignment of strategy and
human resources management in Huabo Group by application of related theories, this study
provide implications to promote the development of Huabo Group; on the other hand, this study
provide implication for similar enterprises in emerging market regarding alignment of strategy
and human resource management.
1.2.2 Research questions
The following aspects will be researched in this study: (1) what is the strategy type of
Huabo Group that may effectively adapt to a rapidly changing external environment with
Chinese economy transformation; (2) to what extent, does its business strategy align with the
human resources management; (3) how to improve its human resources system to better align
with and support the current strategy of Huabo Group.
1.3 Structure of the thesis
Contents of the thesis are divided into six chapters:
Chapter 1: introduction; this chapter mainly includes three parts: research background;
research objectives and questions; structure and chapters of the thesis.
Chapter 2: related literature review and theoretical framework; this chapter mainly
describes related connotations of corporate strategies, the theory of competitive advantage and
resource of enterprise, related connotations and role/framework of strategic human resources
management, and results of researches on corporate strategy and human resources management
alignment, providing solid theoretical basis for later status analysis, problem recognition and
suggestions proposal as for Huabo Group.
Chapter 3: This chapter mainly includes basic information and strategic human resources
of Huabo Group, introduces the industry background and basic profile of Huabo Group and
explains the strategy, human resources background and strategic transformation requirements
of Huabo Group.
Chapter 4: research design and methods; in this study, the case study method, the interview
method and the questionnaire method are selected and Huabo Group is taken as research
objective to discuss corporate strategy and human resources management alignment among
pharmaceutical distribution enterprises.
Chapter 5: According to basic information of Huabo Group, interview and questionnaire
methods are adopted to research the strategy type of Huabo Group and find out the shortages
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
7
of human resources management and strategy implementation.
Chapter 6: This chapter provides improvement suggestions for current situations of Huabo
Group. Among all the available enterprise resources, human resources are the most innovative,
dynamic and explosive resources. As a result, in order to achieve strategic objectives of
enterprise, human resources are to be sufficiently explored, developed and utilized.
Chapter 7: This chapter summarizes the study and points out the necessity for Huabo
Group to adopt strategic human resources management when it faces with fierce market
competition. And this chapter describes theoretical significance and practical implication of
doing research on Huabo Group’s strategy and human resources management alignment.
Finally, this chapter gives the main conclusion of this study.
1.4 Technical roadmap of the study
The study includes seven chapters with the research idea as shown in Figure 1-1:
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
8
Figure 1-1 Technical Roadmap
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
9
Chapter 2: Literature Review and Theoretical Framework
2.1 Strategy
2.1.1 Strategy and its typology
The word “strategy” is evolved from the Greek word “strategos” (meaning military
strategies and tactics). Then, it gradually becomes a military term and mainly represents tactics
that military generals use to lead and organize armies for combats. In Chinese dictionary, Ci
Hai, “strategy” is described as “overall planning and leading toward wars”. In modern society,
the meaning of “strategy” gradually represent directive, global and farsighted plans, measures
and schemes. Recently, Ma (2017) summarizes the developing history of strategic management
as shown in Table 2-1.
Table 2-1 Milestones of Strategic Management
1960s
Dominant
Paradigm
Business policy (Learned et al., 1965), Enterprise policy research and strategic
analysis framework by Harvard Business School(SWOT)
Corporate
Strategy
Business history (Chandler, 1962), impact of alignment of business unit
organizational structure and diversification strategy on enterprise business
performance; diversification strategy (Gort, 1962), early economics considerations
of enterprise diversification strategy; Corporate Strategy (Ansoff, 1965), discussion
on enterprise strategy by Ansoff: enterprise growth matrix, synergistic effect,
competitive advantages; corporate structure and multinational strategy (Fouraker &
Stopford, 1968), corporate structure and multinational strategy
Business
Strategy
Studies of industry structure (Caves, 1964), the S-C-P analysis paradigm in
industrial economics, academic foundation for Potter revolution
Strategy
Process/ Top
Management
Team (TMT)
General managers and general management process (Koontz, 1961); behavioral
decision making (Cyert & March, 1963), behavioral decision theory(predecessor of
TMT research)
1970s
Dominant
Paradigm
Strategic planning (Steiner, 1979), scenario analysis, strategic planning and
formulation framework and tool
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
10
Corporate
Strategy
Concept of corporate strategy (Andrews, 1971); diversification strategy and
performance (Rumelt, 1974): inter-business correlation and synergistic effect;
simultaneous equation model (Schendel & Patton, 1978), use simultaneous equation
to determine corporate strategy; CSR (Carroll, 1979)enterprise social responsibility
performance
Business
Strategy
Typology of generic strategies (Miles & Snow, 1978), basic strategy typology
method and ideal types; PIMS (Buzzell et al., 1975), impact of strategic planning
on business profitability
Strategy
Process/TMT
Decision making as a political process (Bower, 1970; Pettigrew, 1973), structure of
nonstructural decision; emergent strategy as patterns (Mintzberg, 1978)
1980s
Dominant
Paradigm
Industry analysis (Porter, 1980), analysis of industrial structure and strategic
positioning by Porter; Resource-based View (RBV) (Wernerfelt, 1984),;
stakeholder approach (Freeman, 1984)
Corporate
Strategy
Dominant logics (Prahalad & Bettis, 1986); multimarket competition (Karnani &
Wernerfelt, 1985); Joint ventures (Kogut, 1988); global strategy (Ghoshal, 1987)
Business
Strategy
Generic strategies (Porter, 1980); strategic group (Dess & Davis, 1984); first mover
advantage (Lieberman & Montgomery, 1988)
Strategy
Process/TMT
Logical incrementalism (Quinn, 1980); upper echelon: CEO and top management
team TMT (Hambrick & Mason, 1984), ; fast decision making (Eisenhardt, 1989)
1990s
Dominant
Paradigm
Resource-Based View of the Firms (Barney, 1991),: Austrian approach (Jacobson,
1992)
Corporate
Strategy
Core competence (Prahalad & Hame, 1990); internal corporate venturing
(Burgelman, 1994); parenting advantage (Goold et al., 1994); cooperative
strategy (Dyer & Singh, 1998); international diversification (Hitt et al., 1997)
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
11
Business
Strategy
Hyper-competition (D'Aveni, 1994); Coopetition (Brandenburger & Nalebuff,
1996)game theory and strategy (Camerer, 1991; Saloner, 1991; Parkhe, 1993);
winner takes all (Hill, 1997), competition for industry standard
Strategy
Process/TMT
Absorptive capacity, learning, knowledge, transfer (Cohen & Levinthal, 1990;
Levinthal & March, 1993; Szulanski, 1996), strategy process for organizational
learning; knowledge-based view (Grant, 1996); corporate political-strategy
(Hillman & Hitt, 1999)
2000s
Dominant
Paradigm
Dynamic capabilities (Eisenhardt & Martin, 2000; Teece, 2007), continuous
development of dynamic capability research, micro-foundation of dynamic
capability (strategy)
Corporate
Strategy
Strategic alliance and networks (Gulati et al., 2000); real options approach (Adner
& Levinthal, 2004); corporate entrepreneurship strategy (Ireland et al., 2003)
Business
Strategy
Business model and E-business value creation (Amit & Zott, 2001); blue ocean
strategy (Kim & Mauborgne, 2005); strategy and the Internet (Porter, 2001)
Strategy
Process/TMT
Knowledge flows within MNC (Gupta & Govindarajan, 2000); upper echelon
revisited (Carpenter et al., 2004; Hambrick, 2007); strategy as practice (Whttington,
2003; Johnson et al., 2003; Jarzabkowski, 2004, Jarzabkowski; 2005;), strategy as
combination of practice and activity
2010s
Dominant
Paradigm
Micro foundations of strategy (Barney & Felin, 2013); strategic entrepreneurship
(Hitt et al., 2011)
Corporate
Strategy
Corporate social responsibility (Carroll & Shabana, 2010); corporate political
activity and strategy (Hillman et al., 2004; Lux et al., 2011; Wang and Qian, 2011),
corporate political strategy and its relationship with performance of social
responsibility
Business
Strategy
Age of temporary competitive advantage (D'Aveni et al., 2010); business model
(Teece, 2010; Zott et al., 2011)
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
12
Strategy
Process/TMT
Behavioral strategy (Powell et al., 2011) and neuro strategy (Powell, 2011),;
narcissitic CEOs (Chatterjee 2007; Hambrick, 2011); social performance of CEO
and TMT (Chin et al., 2013)
Source: Ma (2017).
Chandler (1962) pioneered the research on strategic management. He analyzes the
interrelationship of environment, strategy, and corporate structure in his book Strategy and
structure: chapters in the history of the American industrial enterprise and divides the
management decisions into two levels: strategic decisions and tactical decisions. Ansoff argues
that connotation, content and inner structure of corporate strategy are be accompanied by each
other in his book Corporate strategy in 1965. Such strategy attaches great importance to
external environment of enterprise, especially the target market of enterprise products. Andrews
(1971) argues that: Strategy is objective, intention or purpose and the pattern of main plans
prepared in order to achieve them. Such a pattern plays a decisive role in determining businesses
an enterprise is performing or shall perform and the business types. In addition, it is closely
related to external environment of enterprise. Therefore, strategy is the evolution and
development of long-term plan. It reflects two basic characteristics: foresightedness and
subjectivity. Foresightedness means that strategy is formulated before the business activity is
conducted; the subjectivity represents the subjective vision of enterprise senior executives for
the future development of the enterprise. Steiner (1972) argues that enterprise strategy
represents counterattack to the actual and potential actions of competitors. Porter (1985)
introduces economic concepts into researches on enterprise strategy, arguing that the purpose
of enterprise strategy is to earn above-average profits.
In the 21st century, the dynamic capability theory becomes the main paradigm in the field
of strategic management. Kim (2015) proposes the strategic conception of new market space;
Sushil (2015) proposes that there is dynamism and uncertainty of environment itself, but no one
in previous strategic management paradigms is found to be sufficient to cope with the increasing
uncertainty of environment. Therefore, it is necessary to give flexibility to modern strategic
management. Both for the organization and the ecosystem, strategy flexibility shall be given
priority.
In 1980s, Chinese scholars placed their strategic management researches mainly on
combination of existing domestic strategic management theories based on introduction of
foreign classic strategic management books to conduct further researches and comparative
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
13
analyses. At the beginning of 1990s, with development of strategic management theories,
Chinese scholars proposed many strategic management thoughts and explored a theory of
corporate strategy suitable for actual development of Chinese companies. Liu (2010) argues
that the enterprise strategy is global planning of development goals and ways to achieve the
goals based on industry environment and company capability for main purposes of survival and
development. Wang and Tang (2008) have studied the aspects of enterprise strategic
transformation and argued that environment discrimination ability, management and control
ability, resource optimization ability and sustainable innovation ability are four aspects forming
the strategic transformation. These four aspects together with the marketing environment
determine the direction, time and level of enterprise strategic transformation. Zeng and Wang
(2010) propose the theory of strategic space. They argue that, the strategic level should be
analyzed comprehensively from different aspects of strategic elements.
Different scholars have conducted researches on strategy from different aspects,
continuously supplementing its definition as time goes on. In general, strategy refers to the
integrated, global and long-term development direction and planning prepared by company
making use of internal organization advantages and disadvantages and adapting to opportunities
and challenges in external environment. It involves relationship between enterprise and
environment, determination of enterprise mission, establishment of enterprise objective, basic
development guideline, preparation of competitive strategy and other contents. In other words,
strategy refers to a series of guidelines and countermeasures developed by company based on
the enterprise objective developed from evolution of enterprise mission, the macro-
environment/micro-environment and the enterprise strength. These guidelines help company
achieve its goals. It plays a leading role in integral enterprise development, directs enterprise to
analyze opportunities, threats, strength and weakness in different stages of development, and
help enterprise prepare policies fit for its developing rules. Effective execution of strategy can
ensure sufficient allocation and utilization of enterprise resources and make full use of limited
resources, so as to gain best possible results. When formulating strategy, enterprise shall take
full consideration of limitations by external environment and internal resources and set a
practical strategic target based on environment and resources.
In researches on strategic management, scholars propose a number of typologies such as
Miles and Snow (1978) and Porter (1980).
(1) Miles and Snow (1978) typology consist of four strategy types: Prospector Strategy,
Defender Strategy, Analyzer Strategy and Reactor Strategy based on dynamic of products and
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
14
markets (see Table 2-2). The prospector strategy attaches great importance to development and
innovation opportunities, and tries to search for new breakthrough points with a broad market
domain. In contrast, for firm with defender strategy, its target market is a narrow market
segment; it pays great attention to control over market and operational efficiency of market,
instead of opportunities outside the existing market. While prospector strategy and defender
strategy represents at the opposite ends of a continuum of strategic proactiveness, analyzer
strategy fall between prospectors and defenders (Peng, Tan, & Tong, 2004). The analyzer
strategy not only maintains traditional products and services, but also tries to search for new
breakthrough opportunities meanwhile. Lastly, the reactor strategy represents dependent
responses to adaptive cycles and lacks stable strategic direction. Miles and Snow argue that, the
reactor strategy is a residual strategy, which may occur only when other three strategies cannot
work.
(2) Porter (1980) divides the competitive strategy into three basic strategic types based on
competitive strategy and competitive goals, namely cost leadership strategy, differentiation
strategy and focus strategy. They each have their own characteristics: Enterprises implementing
the cost leadership strategy have a higher percentage of market share and low-cost advantage;
they achieve success by operation efficiency, economies of scale, procurement of cheap raw
materials, control of production cost and other methods. Enterprises implementing the
differentiation strategy emphasize high quality, innovative products, brand image and quality
services; they enhance corporate value through unique products and services. Therefore,
enterprises lay emphasis on investing funds to research customer demand, so as to win success
by differentiation. Enterprises implementing the focus strategy have either cost focus strategy
or differentiation focus strategy for a specific target of market segment. They select either cost
focus strategy or differentiation focus strategy against specific target, such as specific
customer/geographic area/product type, to satisfy demands of target groups to gain competitive
advantages.
As discussed earlier, Chinese drugs regulators encourage merger and acquisition among
enterprises in pharmaceutical distribution industry, to consolidate the industry, reduce logistics
and distribution costs, and improve industry concentration in the market for advantages of
economy of scale.
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
15
Table 2-2 Business Strategies and Human Resources Managemant Systems
Organizational/Managerial
Characteristics
Type A
(Defender)
Type B
(Prospector)
Type AB
(Analyzer)
Product-Market Strategy
Limited, stable
product line
Predictable markets
Growth through
market penetration
Emphasis: “deep”
Broad, changing
product line
Changing markets
Growth through
product development
and market
development
Emphasis: “broad”
Stable and changing
product line
Predictable and
changing markets
Growth mostly through
market development
Emphasis: “deep” and
“focused”
Research and
Development Production
Limited mostly to
product
improvement
High volume-low
cost
Emphasis on
efficiency and
process engineering
Extensive, emphasis on
“first-to-market”
Customized and
prototypical
Emphasis on
effectiveness and
product design
Focused, emphasis on
“second-to-market”
High volume, low cost;
some prototypical
Emphasis on process
engineering and
product or brand
management
Marketing Limited mostly to
sales
Focused heavily on
market research
Utilizes extensive
marketing campaigns
Organization Structure Functional Divisional Functional and matrix
Control Process Centralized Decentralized
Mostly centralized, but
decentralized in
marketing and brand
management
Dominant Coalition
CEO
Production
Finance/accounting
CEO
Product research and
development
Market research
CEO
Marketing
Process engineering
Business Planning
Sequence Plan-Act-Evaluate Act-Evaluate-Plan Evaluate-Plan-Act
Source: Miles and Snow (1984).
Accordingly, products and services in the pharmaceutical distribution industry are
experiencing dramatic changes. The strategy typologies proposed by Miles and Snow is mainly
based on the dynamic of products and markets. Such a typology is well matched with the
radically changing product and market environments faced by Chinese pharmaceutical
distribution enterprises. Therefore, this study will employ the Miles and Snow typology.
2.1.2 The theory of competitive advantage and resource of enterprise
The Resource-Based View (RBV) (Wernerfelt, 1984; Barney, 1991) is one of the important
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
16
theories in strategic management fields. RBV helps to explain the competitive advantage
sources of a company and the significant differences of sustained competitive advantages in the
same industry. According to RBV, performance differences among enterprises are caused by
different internal strategic resources, driving the research emphasis of strategic management to
shift from external environment to internal resources of enterprise. The theory provides
theoretical support for strategic position of human resources management and thus is highly
recognized and emphasized by scholars in the field of human resources management.
The resource based theory is first proposed in the book The theory of the growth of the
firm by Penrose (Penrose, 1959). This theory is based on two basic assumptions: (1) resource
heterogeneity. Penrose argues that enterprise resources is heterogeneous, instead of
homogeneous, thus it is possible for enterprise to gain unique competitive advantages. It is the
foundation of the theory of competitive advantage and resource of enterprise. (2) Resource
immobility. Penrose argues that perfect mobility of heterogeneous resources is impossible, thus
different production factors result in different production efficiency. In turn, efficiency
difference makes it possible to maintain the resource heterogeneity.
When Wernerfelt published A resource-based view of the firm on Strategic Management
Journal in 1984, laying a theoretical foundation for RBV, more and more scholars have
conducted researches on this field and the theory has developed into one of the important
theories in strategic management field in 1990s. Wernerfelt argues that internal environment
means much more than external environment for an enterprise and it is critical to create and
maintain competitive advantages of enterprise. ; Wernerfelt also classify resources into two
types: tangible and intangible.
Based on research by Wernerfelt, Barney (1991) developed a theoretical framework of
competitive advantage and resource of enterprise and proposed the “VRIO” model. He argues
that firm resources include all assets, organizational processes, firm attributes, information,
knowledge, and capabilities. He divides resources into three categories: physical capital
resources, human capital resources and organizational capital resources. He also distinguishes
the concepts of common resources and strategic resources, believing that strategic resource
factors forming the unique competitive advantages of enterprise must have four characteristics:
value, rareness, high imitation cost and high replacement cost.
Barney analyzes the resources attributes from a static perspective, while Leonard (2005)
summarizes the methods and processes for enterprise resource integration from a dynamic
perspective. He believes that, in order to achieve resource integration, enterprise should first
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
17
find out and establish core competence. On this basis, enterprise should utilize decision-making
methods to plan, manage and assess factors related logistics to achieve overall optimization.
Most researches on the theory of competitive advantage and resource of enterprise by
Chinese scholars are conducted after 1990s. Bao (2001) argues that, enterprise has two typical
resources, i.e. enterprise assets and enterprise potentials. Enterprise assets refer to valuable
products or services provided by enterprise; enterprise potentials refer to the capability of
enterprise to utilize technology, knowledge, and method. Ma (2008) argues that, resource
integration mainly includes four types: integration of individual resources and organizational
capital resources, integration of internal resources and external resources, integration of new
resources and traditional resources, and integration of transverse resources and longitudinal
resources. Chen (2009) has conducted researches on impact of strategies and resources on
growth performance of growing enterprises and mature enterprises, and classified enterprise
resources as universal resources (including two types: human resources and financial resources)
and dedicated resources. Though there are a lot of researches on the theory of competitive
advantage and resource of enterprise, resource definition proposed by scholars are still too
single and unclear. And present researches on the theory mainly focus on theoretical exposition,
lacking support from empirical data. Therefore, it is difficult to select a strategy that is best
matched with resources from the qualitative analysis perspective.
2.2 Strategic human resources management
2.2.1 Strategic human resources management
Strategic human resources management involves two research fields, i.e. human resources
management and strategic management. It is a combination of strategic management and human
resources and a crossing field based on the two fields. As for definition of strategic human
resources management, scholars have their own point of views. Some scholars argue that,
research on strategic human resources management is to understand the relationship between
organizational performance and human resources management. Most scholars argue that,
strategic human resources management refers to long-term planning related to human resources
development and management prepared by enterprise based on organizational strategy with full
consideration of employee expectation, in order to adapt to external environmental changes and
maintain development. Strategic human resources management gives important guidance to
development and management of human resources, forms an integral part of organizational
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
18
strategy, and also provides great guarantee for implementation of organizational strategy.
Compared with traditional human resources management, strategic human resources
management is global, long-range, stable and adaptable. Its main characteristic is that it
combines with enterprise strategic goal and considers the strategic goal as a starting point to
systematically design and implement human resources development and management activities,
making the strategic goal match with the overall competitive strategy of enterprise, thus to
improve enterprise competitiveness and finally achieve the overall strategic goal.
About 1980s, survival and development environments of enterprise changed greatly, and
the key factor to maintain the competitive advantages of enterprise changed from material assets
to intangible assets. The acute transformation of technology, economy and society also brought
great changes to strategic environment of enterprise, resulting in new challenges to human
resources management. Research on human resources experienced a great breakthrough, which
shifts the research from micro orientation to macro orientation. Such macro orientation is
usually termed “strategic human resources management”. One of the most important changes
is that human resources management begins to step onto the historical stage as a strategy
contributor to enterprise. Research on human resources management develops from micro level
to macro level.
Walker (1978) proposed to combine strategic planning and human resources planning,
which is the first time to sprout the thought of strategic human resources management. Devanna,
Fombrum, and Tichy (1984) developed the fundamental framework of strategic human
resources management. According to their research, enterprise external environment causes
impact on organizational strategy, corporate structure and human resources management.
Through mutual regulation and adjustment, the three factors may make organization rapidly
adapt to environmental changes. Similarly, the organization itself has to actively adjust strategy,
corporate structure and human resources management in order to develop integrated strategic
human resources management and carry out human resources management from strategic level.
Schuler (1992) proposed the 5P model for strategic human resources management which
includes five aspects, i.e. human resources policies, human resources philosophy, human
resources programs, human resources practices and human resources processes. The five
aspects are interconnected and form a unified whole based on organizational hierarchy in order
to match up with organizational strategic objectives through human resources management in
a more effective way. Wright et al., (2001) argue that HRM practice system includes four
aspects: employee selection, training, assessment and compensation. Bowen and Ostroff (2004)
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
19
argue that the strategic human resources management process includes four aspects: uniqueness,
consistency, commonality and strategic human resources management atmosphere.
As for human resources management concepts in China, the most commonly used one at
very early time was the concept of labor. Since 1980s, the human resources management
concept was brought into use in China as China opened to the outside world with presence of
foreign-invested enterprises and moved from planned economy to a more market-oriented
economy. With increasingly fierce domestic market competition, talent competition gradually
becomes the core content of domestic market competition, and human resources start to become
important strategic resources for enterprise. Peng (2003) argues that strategic objectives should
be satisfied by proper utilization of five factors: human resources planning, employee
recruitment, employee training, performance management and compensation management
system. Wang (2012) asserts that, strategic human resources practices include six aspects:
careful selection, extensive training, internal promotion, employment guarantee, incentive
compensation and employee engagement. Yu (2014) argues that, strategic human resources
practices include human resources planning, employee recruitment, employee training,
incentive, performance assessment and cross-cultural management.
Liu et al., (2010) have studied on impact of alignment of four human resources
management systems (including commitment type, market type, control type and cooperation
type) and four organizational cultures (including developmental type, rational type,
bureaucratic type and team culture type) on organizational performance from the perspective
of alignment; Ma (2014) has conducted researches on establishment of theoretical model from
a micro level of enterprise social responsibility from the perspective of interested party and
used human resources management as an intervening variable to disclose the mediation
mechanism of relationship between enterprise social responsibility and organizational
performance. Some scholars also argue that the human resources strategy refers to alignment
of human resources management and enterprise strategy in essence, including internal and
external alignment. Lan (2015) has conducted researches on corporate strategy and culture of
Dell. According to his research, the human resources management of Dell shows a
representative “performance”-oriented characteristic and aims at reducing enterprise cost and
improving work efficiency. He has also conducted researches on impact of corporate strategy
and culture on human resources management, arguing that enterprise culture is a unique and
informal system in an enterprise and plays an important role in enterprise human resources
management. Cultural background also has an effect on human resources management. For
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
20
example, Chinese traditional culture advocates “the golden mean”, thus human resources
management of Chinese enterprises shows a parenting type and emphasizes a harmonious
interpersonal relationship. While American culture advocates rule of law, emphasizes
individual striving and attaches great importance to science and quantitative analysis. Therefore,
human resources management of American enterprises shows legal and normalized
characteristics. Liao (2016) argues that enterprise strategy and human resources management
shall be combined in order to exploit the advantages of enterprise resources to the full and gain
competitive advantages.
The rich theoretical frameworks about strategic human resources management literature
reflect constantly deepening of strategic human resources management researches. In practice,
enterprise not only has to make sure that human resources management align with overall
enterprise strategy during strategic management, but also actively takes human resources
management into consideration during formulation of enterprise strategy, making sure the
strategic vision position of human resources management. Thus, it is necessary to conduct
researches on human resources management and strategy alignment.
2.2.2 Strategic human resources role and framework
According to the strategic human resources theory, human resources are considered as an
organic component of overall strategy, and human resources management is performed from a
strategic perspective, which is more advanced than traditional human resources management.
Ulrich (1998) proposes four key roles of human resources: strategic partner, change agent,
administrative expert and employee champion. Human resources management plays a unique
role in driving human capital expansion, gaining sustained competitive advantages and
directing human resources management practices for enterprise. According to researches of
most scholars, human resources are a major resource of competitive advantage for enterprise.
Scarce and inimitable human resources will bring higher performance for enterprise. Wright et
al., (2001) propose the concept of organizational “human capital pool”, that is to say, highly
skilled and inspired labor has a great potential to form organizational competitive advantages.
Hitt (2001) found that human capital causes direct impact on organizational performance. Gao
and Zhao (2001) point out the important role of human resources for enterprise in gaining
sustained competitive advantages from three aspects: value, scarcity and imitativeness of
resources. Yang (2006) suggests that, strategic human resources management mainly affects
organizational employee team characteristics through intermediate variables, thus building a
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
21
relationship with three factors that affect organizational performance indexes. The main
employee team characteristics refer to human capital, employee motivation and employee
turnover. The three main factors that affect organizational performance include human cost,
organizational knowledge creativity and market orientation. Li (2008) argues that, strategic
human resources management may help to promote employee capacity development, so as to
improve organizational performance. Its action mechanism is mainly reflected in two aspects:
1, strategic human resources management considers human capital as intellectual capital and
effectively attracts, develops and maintains human capital, thus making direct contributions to
organizational performance; 2, strategic human resources management may promote
organizational performance indirectly. “People-centered” strategic human resources
management attaches importance to motivating employees. It forms good organizational
climate and cohesion, attracts employees and stimulates potentials and creativity of staff by
affecting their attitudes, thus to improve job satisfaction of employees; it stimulates employee
commitment to the organization to reduce employee turnover rate and improve organizational
performance. In general, human resources are a key internal resource of enterprise. Advantages
over human resources are difficult to be imitated and replaced by other enterprises. Therefore,
human resources strategy is able to bring sustainable core competence for enterprise and
enables enterprise to gain competitive advantages for a long run.
Typology of human resources management forms an indispensable part of researches on
human resources management. Domestic and foreign scholars have conducted various
researches on typology of human resources strategies from different perspectives, mainly
including the following categories:
Schuler proposes three types of human resources management modes: accumulation,
utilization and facilitation.
1) Accumulation emphasizes on performing human resources management in the long run,
paying attention to talent training, and recruiting employees through selection; taking
permanent employment as the principle and treating all employees based on the principle of
fairness; taking position and length of service as the basis of compensation with slow employee
promotion speed in general; developing employee skills and knowledge by training to activate
greatest potentials of them.
2) Utilization emphasizes on performing human resources management in the short run
and providing less training for employees; filling a position immediately once it is vacant,
adopting the non-lifetime employment system with fast employee promotion speed and
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
22
measuring the salary system on a personal basis; paying attention to alignment of employee
capability, knowledge and job.
3) Facilitation falls in between accumulation and utilization. It requires employee to
acquire technical abilities and maintain a good relationship with colleagues. Employees mainly
improve their capabilities and knowledge on their own.
Stace and Dunphy (1994) propose four types of human resources management modes:
parenting type, developmental type, task type and transformational type (see Table 2-3).
1) In parenting type, enterprise selects command-driven human resources management
according to overall strategy in order to promote sustainable development. It is mainly used to
in enterprises pursuing for stability and avoiding changes;
2) In developmental type, enterprise adopts progressive human resources management
with change strategy in order to adapt to environmental changes and development when
enterprise is in a continuously developing and changing environment;
3) In task type, enterprise adopts a top-down command-driven human resources
management when it faces partial changes, and enterprise adopting this type relies on effective
management to a large extent;
4) In transformational type, enterprise adopts high-pressure and command-driven human
resources management when it is entirely unable to adapt to environmental changes and thus
gets into trouble.
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
23
Table 2-3 Human Resources Management Classification
Type of HR
Practices Features
Management
Style Change Degree
Parenting Type
(1) Control human resources
management in a centralized way;
(2) Emphasize on process,
precedent and consistency; (3)
Conduct organizational and method
researches; (4) Adopt strict internal
appointment and removal system;
(5) Underline operation and
supervision; (6) Take rewards and
punishment and agreement as
management methods.
Give priority to
command-driven
management
Basically stable,
with minor
adjustments
Developmental
Type
(1) Pay attention to developing
individuals and teams; (2) Give
priority to internal recruitment;
(3) Pay attention to development
and training; (4) Use "internal
motivation" more often than
“external motivation”; (5) Consider
overall development of enterprise
first; (6) Emphasize overall
enterprise culture; (7) Emphasize
performance management.
Give priority to
consultive
management with
supplement of
command-driven
management
Progressive,
constantly
changing
Task Type
(1) Attach great importance to
achievement and performance
management; (2) Emphasize
human resources planning and
routine job inspection; (3) Attach
importance to material rewards; (4)
Combine internal with external
recruitments; (5) Prepare regular
skill training plans; (6) Attach
importance to enterprise culture.
Give priority to
command-driven
management with
supplement of
consultive
management.
Partial changing
Transformational
Type
(1) Perform significant changes to
corporate structure and entirely
adjust positions; (2) Adjust
employee structure and save costs
by downsizing; (3) Hire core
talents by external recruitment; (4)
Attach importance to team training
and form new culture; (5) Get rid
of traditional customs and abolish
old cultures; (6) Build a new
human resources system suitable
for business environment.
Combine
command-driven
management with
high-pressure
management
Overall changing
Source: Chen, Yu, and Cheng (2011)
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
24
The scholars in American Cornell University classify human resources management
modes into three types from the perspectives of employer monitoring and employee
performance control: inducement, investment and involvement (Batt & Colvin, 2011). 1)
Inducement human resources management means that enterprise mainly attracts employee from
other enterprises by generous remuneration (such as salary and welfare) to form its employee
team. With such strategy, enterprise maintains a simple employment relationship with its
employees and adopts a scientific management mode proposed by Taylor.
Employees are required to undertake heavy work. Therefore, such enterprise has high
employee turnover rate. 2) Investment strategy means that enterprise mainly forms its high-
quality employee team by development within the enterprise. With such strategy, enterprise will
maintain a long-term and stable working relationship with its employees. Enterprise usually
recruits different types of employees to improve its resilience. It attaches importance to
employee development and training and considers employees as its best investee. It tries to
create a harmonious cultural atmosphere and good labor relations and pays attention to building
a belonging consciousness for employees. 3) Involvement strategy means refers to a strategy
falling in between attraction and investment strategies. It pays attention to building a sense of
participation for employees. Enterprise gives much decision-making power to ordinary
employees and makes most of them participate in decision making to improve their enthusiasm
and creativity, so as to improve their sense of belonging and responsibility.
Currently, there are some researches on human resources management typology in China.
Yang and Liu (2003) classify human resources management into three types: balance type,
innovation type and response type. Balance type attaches great importance to internal and
external balance and alignment and considers that human resources come from internal and
external information exchange in an enterprise. This type emphasizes coordination and
alignment. Innovation type attaches great importance to building organizational culture and
considers that organization can create various innovative enterprise cultures to encourage
innovative behaviors from employees. Response type means that enterprise responds to
environmental changes and corporate strategy in a negative way. Human resources strategy is
simply subject to enterprise strategy and considered as a follow-up strategy.
Zhao (2011) divides human resources management into investment, attraction and
involvement types based on the role of enterprise in human resources management. Enterprise
with investment type human resources management always recruits different types of
employees in order to utilize their various professional skills, maintains a long-term and stable
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
25
working relationship with employees, and attaches importance to training and continuing
education; employees are always guaranteed for their work and generally considered as investee
by enterprise. Enterprise with attraction type human resources management will control the
number of employees to the utmost extent mainly in order to control costs; employee
recruitment and selection are relatively simple due to segmentation of most jobs, thus resulting
in low training expenses; in general, enterprise will not consider employees as investee and
maintains a simple and direct benefit exchange relationship with employees. Enterprise with
involvement type human resources management will delegate a lot of decision-making power
to ordinary employees and enables most employees to participate in decision making, so as to
improve their initiative and creativity, strengthen their sense of belonging and reduce employee
turnover rate. Ma, et al (2016) proposes that human resources management in Chinese
enterprises includes two types: control approach and commitment approach. Control type
focuses on supervision of procedure and performance process, while commitment type focuses
on employee participation and high-end needs of employees. Ma and colleagues argue that
control approach of human resources management is the premise of commitment approach and
that local enterprises in China shall first build foundation for human resources management and
adopt control approach well before promoting commitment approach human resources
management.
2.3 Strategy and human resources management alignment
2.3.1 Research on strategy and human resources management alignment
Alignment is a two-way activity. As for corporate strategy and human resources
management alignment, there are two key factors, i.e. corporate strategy and human resources
management. The key link is the “alignment”, which means "be equal to" and "match with".
According to the contingency theory, there is no optimal human resources model in enterprises.
The impact of human resources management on organizational performance depends on its
alignment with the strategy. If they align with each other, human resources management will
have a positive effect on enterprise performance.
Kaplan and Norton (2006) defined the strategy alignment: Organization achieves harmony
and consistency of various strategic characteristics inside the organization by a series of
activities. Venkatraman (1989) argues that the real purpose of strategy alignment is to build and
maintain a close and consistent relationship between human resources strategy and corporate
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
26
strategy.
The internal mechanism of human resources strategy and strategy alignment is:
Preparation and implementation of enterprise strategy need support from human resources and
enterprise may gain human resources advantages by planning and implementing proper human
resources strategy to obtain economic benefits; during preparation of enterprise strategy, it will
provides strategic direction for preparation and implementation of human resources strategy,
help to improve efficiency of human resources management and create a much more favorable
environment for planning and implementation of human resources strategy, thus to achieve
sustainable enterprise development.
Due to the differences of strategy typology methods, different scholars propose their own
opinions on strategy and human resources management alignment. They conduct different
researches on relationships between enterprise strategy and human resources management
according to different classification methods of strategy.
Based on the interactional and interdependent relationship between corporate strategy and
human resources management, Lewin and Mitchell (1994) point out that corporate strategy and
human resources management alignment can help enterprise to discover market opportunities,
improve its internal organizational advantages, and help it to achieve its strategic objectives.
Lengnickhall (1988) argues that, corporate strategy will affect and be affected by human
resources management. They are interactional and interdependent. Human resources
management is not the only factor in but has a direct impact on the formation of corporate
strategy, so it is possible to align enterprise strategy with human resources management.
Andrew (2001) argues that along with increasingly fierce competition among enterprises,
and increasing restructuring, acquisitions and mergers of the enterprises, human resources
management must be able to adapt to environmental changes and align with corresponding
corporate strategy. The most representative theories include: the theory of corporate strategy
and human resources management alignment proposed by Miles and Snow; the commitment
type and control type human resources management systems proposed by Bae (1997), which
respectively correspond to differentiation strategy and cost leadership strategy proposed by
Porter (1980).
Gomez-Mejia, Balkin, and Cardy (2008) discuss human resources aligning with the three
competitive strategies proposed by Porter (1980): If enterprise adopts the cost leadership
strategy, it mainly gains competitive advantages by low costs. Under such a mode, human
resources management attaches great importance to effectiveness and low-cost production,
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
27
instead of creativity and innovation by employees. Therefore, human resources management
aligning with the cost leadership strategy is the cost-reduction type. If enterprise adopts the
differentiation strategy, it mainly gains core competence by innovation of products or services.
Under such a mode, enterprise always owns a strong marketing capability and features product
quality. Therefore, human resources management aligning with the differentiation strategy is
the innovation type emphasizing innovation and flexibility. If enterprise adopts the focus
strategy, this strategy combines cost leadership strategy and differentiation strategy, therefore
human resources management aligning with this strategy are the combination of management
under cost leadership strategy and differentiation strategy.
Strategy and human resources management alignment is a dynamic and sustainable
process. Strategy and human resources management alignment results in three aspects of
competitive advantages: (1) Achieve “strategic consistency”. Enterprise will gradually
improves its executive force and adaptability, thus to better satisfy market demands. (2)
Interaction between strategy and human resources management will effectively integrate
flexibility, feasibility and cost planning on strategic human resources managements. (3)
Strategy and human resources management alignment is in favor of continuously improving
core competence.
2.3.1.1 Strategy typology proposed by Miles and Snow and human resources management
alignment
According to Miles and Snow (1984), what determines the success of enterprise is not a
certain strategy type adopted. If the strategy adopted aligns with environment, technology and
structure of enterprise, it will lead to success. According to the research conducted by Miles
and Snow (1984), when enterprise adopts a different type of strategy, there will always be
different human resources management type aligning with the strategy type (see Table 2-45).
In addition, Gomez-Mejia et al. (1988) came to similar conclusions of Miles and Snow which
are summarized as follows:
(1) When enterprise adopts the defender strategy, it faces narrow market and mainly
emphasizes on production efficiency and cost control with centralized management mode inside
organization. Human resources management aligning with this strategy mainly includes: 1)
provide detailed and specific job descriptions; 2) perform short-term and result-oriented
performance appraisals and focus on individual appraisals; 3) focus on basic training for
employees.
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
28
(2) When enterprise adopts the prospector strategy, it needs to continually develop new
products and markets with decentralized management mode inside organization. Human
resources aligning with this strategy have characteristics as follows: 1) provide limited and
informal work plans and inexplicit job descriptions; 2) talents are recruited mainly from
external markets; 3) the salary system mainly focuses on external competition, instead of
internal equity, with relatively high proportion of compensation changes.
(3) When enterprise adopts the analyzer strategy, it will seek for new products and market
opportunities on the one hand, and will also maintain the stability of existing market on the
other hand. Therefore, both stable and innovative employees are needed and human resources
aligning with this strategy have characteristics as follows: 1) provide relatively explicit job
descriptions; 2) perform both individual and group performance appraisals, most of which are
short-term and process-oriented; 3) talents are recruited mainly from external market; 4) usually
conduct continuous trainings; 5) the salary system focuses on internal fair performance. In
general, allocation type human resources management is adopted.
2.3.1.2 Strategy and human resources management alignment proposed by Schuler
Schuler proposes three strategies: innovation, quality-enhancement and cost-reduction
strategy (Schuler, 1989). The innovation strategy mainly focuses on providing differentiated
products and services. The quality-enhancement strategy mainly focuses on improvement of
quality (or service) quality. Enterprise adopting the cost-reduction strategy usually becomes the
lowest-cost manufacturer to gain competitive advantages. As previously mentioned, Schuler
divides human resources management into three types according to employment ideality,
employee role, marketing environment and operating cost of enterprise: facilitation,
accumulation and utilization. According to Schuler, different strategies need different employee
role behaviors, thus requiring different human resources management practices. Table 2-5
shows the HRM practice forms aligning with the strategy types proposed by Schuler. The HRM
practice form in line with the innovation strategy is helpful to cultivate cooperative employee
behaviors, while facilitation human resources management model falls in between
accumulation and utilization types and requires employees to gain technical capabilities and to
maintain a good relationship with colleagues.
Usually, quality improvement also represents improvement of production process and
method and employees always behave in a relatively repetitive and predictable way.
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
29
Table 2-4 Human Resources Frame Aligning with Strategy Type
Human
Resources
Management
System
Type A
(Defender)
Type B
(Prospector)
Type AB
(Analyzer)
Basic strategy Building human
resources
Acquiring human
resources
Allocating human
resources
Recruitment,
selection, and
placement
Emphasis:”make”
Little recruiting above
entry level
Selection based on
weeding out undesirable
employees
Emphasis: “buy”
Sophisticated recruiting
at
all levels
Selection may involve
pre-employment
psychological testing
Emphasis: “make” &
“buy”
Mixed recruiting &
selection approaches
Staff planning
Training and
development
Formal, extensive
Skill building
Extensive training
programs
Informal, limited
Skill identification &
acquisition
Limited training
programs
Formal, extensive
Skill building &
acquisition
Extensive training
programs
Limited outside
recruitment
Performance
appraisal
Process-oriented
procedure
(for example,
based on critical
incidents
or production
targets)
Identification of training
needs
Individual/group
performance
evaluations
Time-series comparisons
(for example, previous
years' performance)
Results-oriented
procedure (for example,
management by
objectives or profit
targets)
Identification of staffing
needs
Division/corporate
performance
evaluations
Cross-sectional
comparisons (for
example, other
companies during same
period)
Mostly process-oriented
procedure
Identification of training
and staffing needs
Individual/group/
Division performance
evaluations
Mostly time-series, some
cross-sectional
comparisons
Compensation Oriented toward position
in organization hierarchy
Internal consistency
Total compensation
heavily oriented toward
cash and driven by
superior/subordinate
differentials
Oriented toward
performance
External competitiveness
Total compensation
heavily
oriented toward
incentives
and driven by
recruitment
needs
Mostly oriented toward
hierarchy, some
performance
considerations
Internal consistency and
external competitiveness
Cash and incentive
compensation
Source: Adapted from Canadian Pacific Ltd, © 1980
They perform low-risk activities and keep organizational commitments. Enterprise
adopting such strategy type requires employees to devote themselves to production or service
process in a more dedicated way and gain the flexible ability. With fewer job classifications,
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
30
HRM practices of quality-enhancement strategy include timely feedback system and facilitated
teamwork with decision making and responsibility becoming a part in job description for each
employee, and job classification will be more flexible correspondingly.
The quality-enhancement strategy will promote employees' commitment to the
organization and make full use of their human capital to create value. A small number of
employees may also provide high output. As quality of products or services improves, demand
for products will increase, and only partial employees are needed to complete the increased
demand. The HRM practices of quality-enhancement strategy promotes quality enhancement
by guaranteeing highly reliable behaviors of individuals and these individuals are regarded as
a whole with organizational objectives. The corresponding accumulation human resources
management emphasizes to treat human resources in the long run, pays attention to talent
training, treats employees based on the principle of fairness, and focuses on developing
employee skills and knowledge through training.
The characteristics of cost-reduction strategy include performing tight control, fund
minimization, pursuing for economies of scale, primarily autonomous or individual activity,
high concern for quality of output (goods or services) and a relatively high degree of comfort
with stability. For such enterprises, the primary focus is to increase productivity, that is, output
cost per person. This can mean a reduction in the number of employees and/or a reduction in
wage levels. Cost reduction may also be pursued by increased use of part-time employees,
subcontractors, work simplification, measurement procedures, automation, work rule changes,
and job assignment flexibility. Therefore, cost-reduction strategy mainly aims at reducing the
unit production cost per employee. The HRM practice form in line with the cost-reduction
strategy maximizes production efficiency and minimizes costs mainly by monitoring and
closely controlling the behaviors of employees in production or service. The corresponding
utilization human resources management emphasizes that human resources management shall
be regarded from a short-term perspective and provides less training for employees.
Based on the strategy typologies and alignment frameworks by Miles and Snow as well as
Schuler, strategy and human resources management alignment is summarized in Table 2-5, 2-
6:
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
31
Table 2-5 Human Resources Frame Aligning with Strategy Type
Strategy
Type Innovation Strategy
Quality-Enhancement
Strategy Cost-Reduction Strategy
HR Practices
Type Facilitation Accumulation Utilization
Human
Resources
Planning
Provide more flexibility and
takes minimal control with
high degree of participation by
employees
Relatively fixed and
explicit job
descriptions
Relatively fixed (stable)
and explicit job
descriptions; Narrowly
designed jobs and
narrowly defined career
paths
Employee
Recruitment
and Selection
Pay attention to external
recruitment, select highly
skilled employees, require
close interaction and
coordination among groups of
individuals
High levels of
employee participation
in decisions relevant to
immediate work
conditions and the job
itself
Mainly perform internal
recruitment, reduce the
number of employees
and increase use of part-
time employees
Training and
Development
Allow employees to develop
skills; Broad career paths to
reinforce the development of a
broad range of skills
Extensively and
continuous training
and development of
employees
Minimal levels of
employee training and
development with fewer
career paths
Performance
Appraisal
Conduct performance
appraisals based on long-term
objective, it is more likely to
reflect longer-term and group-
based achievements
A mix of individual
and group criteria for
performance appraisal
that is mostly short
term and results
oriented
Short-term, results-
oriented performance
appraisals
Compensation
Pay rates tend to be low, but
allow employees to be
stockholders and have more
freedom to choose the mix of
components (salary, bonus and
stock options)
Relatively egalitarian
treatment of
employees and some
guarantees of
employment security;
Emphasize internal
equity; Provide some
incentives
Adopt a hierarchical
salary system and close
monitor market pay
levels for use in making
compensation decisions
Source: Schuler (1989)
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
32
Table 2-6 Human Resource Management and Strategy Type Alignment
HR Practices
Type
Defender Strategy/
Cost-Reduction
Strategy
Prospector Strategy/
Innovation Strategy
Analyzer Strategy/
Quality-Enhancement
Strategy
Utilization Aligned Unaligned Slightly unaligned
Facilitation Unaligned Aligned Slightly unaligned
Accumulation Slightly unaligned Slightly unaligned Aligned
Human
Resources
Planning
Provide relatively fixed
(stable) and explicit job
descriptions; perform
internal construction of
human resources
Limited and informal;
inexplicit job
description; employees
being given high
flexibility; human
resources obtained
externally
Relatively fixed and explicit
job description with
allocation of human
resources
Employee
Recruitment
and Selection
Mainly perform internal
recruitment, instead of
external recruitment;
reduce the number of
employees and increase
use of part-time
employees
Emphasize external
recruitment, select
highly skilled
employees, require
close interaction and
coordination among
groups of individuals,
and need high
recruitment and
selection functions.
Combine internal selection
and external recruitment
Training and
Development
Formal training plans
with narrow career
paths
Provide limited
training programs
Formal, extensive and
continuous employee
training & development
Performance
Appraisal
Provide short-term,
results-oriented
performance appraisals;
emphasize critical
incidents or production
targets
Adopt results-oriented
procedure; it is more
likely to reflect longer-
term and group-based
achievements
A mix of individual and
group criteria for
performance appraisal that
is mostly short term and
results oriented
Compensation
Compensation based
mainly on position in
organization hierarchy;
emphasize on internal
consistency
Emphasize individual
performance;
emphasize external
competitiveness
instead of internal
equity; high-proportion
compensation changes
exist
Relatively egalitarian
treatment of employees and
some guarantees of
employment security
Compensation system takes
both internal consistency
and external
competitiveness into
consideration
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
33
2.3.2 Chinese researches on corporate strategy and human resources strategy alignment
Currently, opinions on strategic incentive, strategic compensation and compensation
strategy are proposed in Chinese researches on enterprise human resources management, and
there are theoretical analyses based on related researches in western countries. However, there
are no empirical researches on enterprise strategy and human resources policies alignment.
In addition, most Chinese researches on classification and alignment of strategy and
human resources management are based on summaries of Western researches. Liu (2005)
divides human resources into high and low level groups by clustering analysis and researches
the different impacts of different human resources management practice combinations on
enterprise performance in the high level group. Xu and Yang (2005) take more than 100
manufacturing enterprises as samples to research supportive human resources practices by
regression analysis. According to the research results, there is a certain connection between
supportive human resources practices and enterprise performance; the new product flexibility
strategy has no effect on human resources practices, while the market modification flexibility
strategy has an obvious regulating effect on the relationship between supportive human
resources practices and enterprise performance. Zhang (2006) researches the relationship
between human resources system and organizational performance, proposes the assumption
about the relationship between human resources management activities and organizational
performance and about the mediating effect of human resources management effectiveness, and
takes the 133 sample enterprises as objects to perform empirical analysis. According to research
results, only occupational promotion, performance management and compensation
management in human resources management activities have a marked impact on “talent
attractiveness”; training development management and compensation management have a
marked impact on “enterprise skill level”; compensation management and employee
participation have a marked impact on “enterprise employee motivation”. Liu and Zhou (2008)
conduct research on four types of human resources practice forms proposed by Lepak and Snell.
Their research mainly focuses on the optimal alignment pattern of human resources
management practice combination and enterprise strategy. According to the research, on the
one hand, enterprise strategy has an obvious impact on human resources practices; on the other
hand, interaction between human resources management system and enterprise strategy causes
an obvious impact on growth of enterprise profit and sales volume.
Jin and Wang (2001) argue that alignment management is an important human resources
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
34
management work. They also emphasize that alignment work plays an important role in
improving staff utilization efficiency, enterprise performance and core competence. Luo (2003)
describes the dynamic alignment model of human resources. He believes that, only if you are
fully aware that human resources management alignment is a non-static and dynamic
configuration procedure for human resources and business organization, you will provide
employees with proper career development planning, thus to fully motivate their creativity and
enthusiasm, improve enterprise productivity and obtain greater economic benefits. Cheng (2009)
points out from other perspective that human resources must be treated based on the macro-
strategy view in order to well achieve strategy and human resources management alignment.
Han (2010) analyzes the significance and role of person-post matching. He proposes that,
human resources management and enterprise strategy alignment shall be promoted from several
aspects, including defining post responsibilities and incumbent requirements, aligning
compensations with post contributions, preparing reasonable incentive systems, and preparing
reasonable criteria for performance assessment. Wang (2011) points out that cost leadership
strategy pays more attention to internal efficiency and cost minimization, reducing the impact
of human capital on enterprise performance. Therefore, control type human resources
management best matches. Enterprise adopting innovation strategy requires employees to be
active and initiative and to make a long-term commitment to the enterprise. Thus, enterprise is
required to take a long-term view to treat employees and adopt investment type human
resources. Enterprise adopting quality type strategy requires employees to be highly involved
and to have team capacity. Thus, involvement type human resources will satisfy these
requirements. Li (2012) discusses the research framework for relationship between strategic
human resources management and organizational performance and studies in depth their
mechanism of action from five perspectives (including best practices, aligning methods,
resource-based view, stakeholder and organizational learning).
Among researches conducted by scholars, some achievements have been obtained for
researches on Chinese strategy and human resources management alignment. At the beginning,
scholars mainly introduce western research results. Then, they verify, amend and supplement
western research theories based on Chinese practices. Now, they perform reflective and
innovative researches on problems in current research fields. These research results contribute
to the development of research on strategy and human resources management alignment and
guide the understanding and promotion of strategy and human resources management
alignment in Chinese practices. However, as a whole, current researches on Chinese strategic
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
35
human resources management have some shortcomings, mainly including three aspects as
follows: First, there are some researches on strategy and human resources management
alignment in China. But theoretical researches and empirical researches in this field are not
profound enough. Most of them reference and take in western theories. There are no unique
Chinese systems and patterns currently. Second, results of researches on strategy and human
resources management alignment focus on few topics. Therefore, deepening and development
of research topics are an important direction for future deepening of researches on Chinese
strategy and human resources management alignment. Third, logic of existing researches on
strategy and human resources management alignment is divorced from enterprise management
practices.
2.4 Summary
By reviewing domestic and international literatures, it is found that there are gaps in
previous researches on relationship between corporate strategy and human resources
management, including the following aspects:
First, only a few two-dimensional researches on corporate strategy and human resources
have been performed. In existing literature reviews, many scholars often take either strategy or
human resources as an independent variable to conduct alignment researches when studying
the corporate strategy and human resources management alignment, resulting in research
findings which create an unequal relationship between strategy and human resources. Thus, it
is unable to uncover the practical alignment relationship between them.
Second, as human resources are limited by inherent characteristics, it is difficult to perform
empirical researches on human resources management and strategy alignment. Some scholars
only reflect some part of human resources alignment with strategy when conducting researches
on aligning factors of corporate strategy and human resources strategy. For example, Yang
(2008) summarizes and discusses current situation and characteristics of compensation
management systems in Chinese enterprises, propose basic approaches in order to achieve
alignment based on basic framework, action mechanism and alignment pattern of compensation
and strategy alignment, and finally suggests measures to promote enterprise strategy and
compensation alignment. However, alignment between other dimensions of human resources
and strategy is ignored in such researches.
Third, most existing researches on strategy and human resources management alignment
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
36
are performed by developed regions and countries such as Europe and America for local
enterprises. In this case, findings of such researches are generally not applicable to Chinese
enterprises.
According to above analyses and existing researches, this study tries to explore the current
strategy type of Huabo Group under the condition of national medical reform and problems
about strategy and human resources system alignment, and finally provides research results
from emerging economy and implication for enterprises in similar context.
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
37
Chapter 3: Pharmaceutical Distribution Industry and Huabo
Group
This chapter describe the general situation of pharmaceutical distribution industry in which
the Huabo Group is engaged and development of Huabo Group Huabo Group. The first part
focuses on the development and changes of pharmaceutical distribution, highlighting the
dynamic, complex and hostile environment that Huabo Group is facing. The second part focuses
on the development of Huabo Group, in particular the evolutions of its strategy and human
resource management. In order to better adapt to market demands, promote sustainable and
healthy development, and improve competitive advantages, Huabo Group chose a strategy of
scale expansion based on practical situations. To realize the strategy, Huabo Group explores
markets in drug supply in hospitals vigorously in recent years and has obtained certain
achievements. It establishes cooperative relationship for drug supply with more than 20
hospitals in Chongqing and actively integrates resources from its retail pharmacies to make the
company bigger and stronger. Since its establishment in 2002, the human resources department
of Huabo Group grows from non-existence to specialized function. Huabo Group has
established human resources management system with key functions including talent
introduction, talent assessment, talent training, performance appraisal, and compensation
incentive systems.
3.1 Pharmaceutical distribution industry in China
3.1.1 General introduction
Specifically, the commercial pharmaceutical distribution means that drugs are procured
from pharmaceutical manufacturers and then sold by bulk to distributors, hospitals or
pharmacies, in order to obtain profits from price differences in this process. The commercial
drug distribution refers to a series of business activities connecting the upstream distributors to
end users or customers. Table 3-1 summarizes the key milestones of pharmaceutical distribution
industry in China, highlighting the transition from planned economy to market economy.
Table 3-1 Evolution History of Pharmaceutical distribution Industry
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
38
Commercial
Evolutionary Stage
of Pharmaceutical
distribution Industry
1950-1983 1984-1998 1999-2014
Economic System Planned economy
Mainly planned
economy with
complementary
market economy
Market economy
Market Condition
Under conditions of
central control and
unified purchase and
sale, drug demands
exceed supply
With economy
transition, the unified
purchase and sale
system is gradually
abandoned
The marketization
degree improves,
national market
regulation strengthens,
merging, reorganization
and acquisition emerge
continuously
Competition Pattern
Under conditions of
national monopoly
and three-level
wholesale, modes are
regulated by levels
There is still national
monopoly, but the
three-level wholesale
mode is broken
Disordered
competition increases
Under monopolistic
competition market,
competition intensifies
Main Market Player
Most of them are
state-owned
enterprises, such as
China National
Pharmaceutical
Group Corporation
Most of them are
state-owned
enterprises, such as
China National
Pharmaceutical
Group Corporation
The state-owned
enterprises, private
enterprises and joint
venture enterprises
coexist
Number of
Wholesale Enterprise About 2000 Over ten thousands About 13000
Source: China Drug Retail Development Research Center (2015)
3.1.2 Recent development of Chinese pharmaceutical distribution industry
With fast growing global economy, ever increasing global population and fast aging
population, there are increasing demands for drugs, so that global pharmaceutical markets have
been always on the move. According to statistics, the growth rate of global medicinal and
pharmaceutical substances in both 2015 and 2016 exceeds the GDP growth rate of that years.
Although the pharmaceutical markets grows rapidly from 2012 to 2016, the growth rates of
major markets are relatively low, only 3-6%. Along with development of Chinese
pharmaceutical market, which is expected to be the second largest market in the world in 2020
with a global market share increasing to 7.5%, new national medical reform policies and
industry management policies and standards are issued, driving the transformation of Chinese
pharmaceutical market.
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
39
At present, the "Healthy China" policy which is listed in the thirteenth Five-Year Plan in
fifth plenary session of the 18th CPC Central Committee will be implemented. A healthy China
will better facilitate the transformation of pharmaceutical distribution enterprises and meet the
growing health needs of the people. Moreover, the aging of the population provides a huge
space for the growth of the pharmaceutical industry. China has the largest aging population in
the world, and it will enter the rapid aging stage by 2020. China will, on average, increase 5.96
million aging population every year, with an average annual growth rate of 3.28%. By 2020,
the aging population will reach a number of 248 million, and the aging level will reach 17.17%.
Among the aging population, there will be 30.67 million elders who are 80 years old and above,
accounting for 12.37% of the aging population. Demands for drugs will further increase. The
demands for drug continue rising among people with chronic diseases. As living pressure of
people increases and the environment is increasingly damaged, chronic diseases outbreak, and
the death rate of chronic diseases is rising year by year. People attach more and more attention
to chronic diseases, and the government continuously intensifies the implementation of
universal health care system, in order to improve the drug affordability of the people. These
favorable policies will bring ever-increasing drug demands and also provide favorable
conditions for development of pharmaceutical distribution enterprises.
Driven by the above factors, in recent years, the pharmaceutical distribution industry
gradually scales up. As seen from Figure 3-1, scales of pharmaceutical distribution markets
increased around 20% since 2012. .
Figure 3-1 Sales Trends of Pharmaceutical Distribution Industry in Year 2012-2016 Data source: China commerce yearbook (2016)
In year 2016, the annual average gross profit rate of the industry is 6.8%, and the annual
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
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average profit margin is 1.7%; the large pharmaceutical wholesalers have a growth rate of
19.4%, higher than the annual average level in the industry, and their annual average profit
margin is 2.09%.
As for the number of enterprises, by June 2016, there are totally 14,900 pharmaceutical
wholesalers and 3,570 retail chain enterprises in the industry with 5.17 million of employees;
by the end of 2016, 17 pharmaceutical distribution enterprises have been listed in stock market
with an average market value of RMB 15.254 billion.
The pharmaceutical distribution industry shows following characteristics in recent years:
(1) Growing retail markets
The pharmaceutical distribution market continues to grow stably. In next few years,
Chinese medical system reform will continue developing both in scope and in depth. Due to the
healthcare reform championed by the government, the coverage of Chinese basic medical
system increases a lot covering national basic medical institutions run by local governments
and 74.6% village clinics. A universal healthcare insurance system is now being implemented
in China. Along with constantly deepening medical reform in China, basic medical institutions
in urban and rural areas will be further improved with gradual improvement of public health
service level. Under the primary medical reform policies, basic medical institutions continually
improve their basic medical levels, leading to rapid growth of drug sales. Trial reform of public
hospitals has been further promoted in recent years. Demands for drug markets will be increased
continuously and the pharmaceutical distribution industry will continue growing. Therefore, it
can be inferred that the annual growth rate of the pharmaceutical distribution industry will
maintain 12%-15%. However, the development rate of large pharmaceutical wholesalers and
pharmaceutical logistics enterprises will be close to 20%, and the growth rate of pharmaceutical
e-commerce enterprises will exceed 20%. In 2016, sales of the top 100 drug retail enterprises
account for 34.3% in the drug retail market. Sales of the top 5, top 10 and top 20 enterprises
account for 9.6%, 16.3% and 22.9% respectively. Among top 100 drug retail enterprises, the
lowest sales amount is RMB 135 million; there are 19 enterprises with sales of more than RMB
1 billion
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Figure 3-2 Number of Retail Pharmacies in Year 2013-2016 Data sources: China Industrial Information Network
(2) Increasing concentration of wholesale markets
With increased market concentration, the pharmaceutical distribution industry is
experiencing structural changes. According to the requirements of the 12th Five-Year Plan,
China will successively introduce reform and development policies especially for the
pharmaceutical distribution industry. Along with the issuing of Good supply practice for
pharmaceutical products, regulatory policies for the pharmaceutical distribution industry will
be adjusted. In this standard, enterprises are required to establish a computer management
information system, drug buying and selling channels are also strictly controlled, and storage
temperature are required to meet certain requirements. In addition, it requires strengthening
invoice management and regulation of drug transport link. These practices will enhance barriers
for market access of the pharmaceutical distribution industry and bring profound impact on the
industry development.
Moreover, the “Two-Invoice System” will bring significant adjustments to the current
pharmaceutical distribution pattern. For enterprises engaged in distribution of clinical products,
redundant links will be cut, including invoicing circulation business and businesses of level II
and above. Only Level I business will be kept. In a word, the business environment will be
changed, “the strong gets stronger and the weak disappears”. The industry concentration will
be further improved, large pharmaceutical enterprises will get bigger and stronger, while small
pharmaceutical enterprises will gradually disappear. It is estimated that, 10,000 out of 13,000
pharmaceutical distribution enterprises will disappear. Currently, there are 15 listed
pharmaceutical distribution enterprises. In addition, some other enterprises are also prepared
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for listing. Along with development of the pharmaceutical distribution industry, there will be
more pharmaceutical distribution enterprises being listed in stock market. Then, these
enterprises are able to become bigger and stronger and continuously improve competitiveness
by capital operation. Under the influence of IPO acceleration, industry refinancing and other
factors, the capital operation of the pharmaceutical distribution industry becomes more perfect
and more promising. For enterprises with terminal teams, the implementation of the "Two-
Invoice System" has little influence, because large enterprises can strategically cooperate with
large commercial companies. In addition, it is unnecessary to attract investment at a floor price
for exclusive drug types as enterprises are financially able to build their own teams. Brand
manufacturers with regulated management and self-built terminal teams are always confident.
For enterprises building their own teams to develop terminals, there is little impact of policies
on them, so that they can even implement the "One-Invoice System". The implementation of
the "Two-Invoice System" will make life much more difficult for those pharmaceutical
enterprises without terminals and brands. Such a situation will greatly promote the regulation
of the pharmaceutical production industry.
In 2016, business incomes of top 100 pharmaceutical wholesalers account for 64% in total
business incomes of national pharmaceutical wholesalers, increasing by 1% when compared to
2015. The business incomes of top 10 wholesalers account for 41.9%, increasing by 2.3% when
compared than 2015. The business incomes of top 3 pharmaceutical wholesalers account for
28.8%, increasing by 2.2% when compared than 2015. It can be seen that the top pharmaceutical
wholesalers drive the industry concentration. As for business incomes, there are 10 enterprises
with an income of more than RMB 10 billion, increasing by 2 enterprises when compared to
2015. As illustrated from Figure 3-3, enterprises with main business incomes of more than RMB
10 billion develop quickly and their market shares increase 5% on year-on-year basis;
enterprises with incomes of RMB 5-10 billion have their market shares decrease by 2%;
enterprises with incomes of RMB 1-5 billion have their market shares remain the same with
those in 2015.
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Figure 3-3 Percentages of Business Incomes of Pharmaceutical Wholesalers with Different Scales in
National Market Data sources: China Industrial Information Network
(3) Changes in pharmaceutical distribution and service models
Currently, the pharmaceutical distribution industry shows trends of market flattening, rise
of primary medical care and drugs being brought into the public. Therefore, the profit model
and commercial service mode face challenges. Along with the development of medical reform,
the whole industry may grasp this opportunity to give full play to advantages of industry
innovation and technological innovation, so as to continuously improve the supply chain
management and enrich service modes.
Due to implementation of new medical reform, supporting measures and market
competition, the gross profit rate of this industry will be further reduced, resulting in severe
challenges faced by the traditional business mode. The core competence of pharmaceutical
distribution enterprises lies in the innovation of service and business modes, promotion of
information technology application to business administration, and improvement of supply
chain management. Competitive enterprises will develop value-added pharmaceutical
distribution services and have a demonstration effect on other enterprises in the industry. More
enterprises will learn from and imitate others and continually deepen and enrich services
provided. On this basis, they establish new partnership with downstream customers and
upstream suppliers, and reasonably integrate resources, so as to achieve mutual benefit and win-
win result, driving the pharmaceutical distribution industry to change to whole industry chain
service mode. Along with extended logistics services for hospital drugs, a series of new service
modes emerge, including hospital logistics management system, undertaking the peripheral
management for hospital drug storehouses, undertaking the pharmacy operation of hospitals
and undertaking the pharmacy functions of community health services centers.
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Moreover, the application of modern information technologies promotes the
comprehensive transformation of the industry. With the continuous progress of "Internet +", the
transformation of the pharmaceutical distribution industry through informatization will be
further deepened. The pharmaceutical distribution mode based on e-commerce will become a
common phenomenon in the industry, and the massive health data will be applied to the
pharmaceutical e-commerce, thus forming a new pharmaceutical distribution supply chain
system. The interconnected, smart, professional and transregional development of
pharmaceutical logistics and service systems, and satisfaction of personalized customized
demands will greatly promote seamless connection of hospitals, doctors, patients, pharmacies,
enterprises and governments, thus forming an ecosphere of the massive health industry. The
traditional pharmaceutical distribution industry has been performed with drastic reform by
information-based means, and e-commerce will greatly change the external environment of
pharmaceutical distribution enterprises.
(4) Decreasing profit margin
Profits for pharmaceutical distribution are affected by many factors. The first pressure
comes from reduction of drug prices. In order to increase urbanization, promote household
consumption, and guarantee urban residents' medical care, the National Development and
Reform Commission reduced the price of medicines twice guiding the pharmaceutical industry
to adapt to the reform of medical and health policies. Therefore, the pharmaceutical distribution
industry has experienced twice reductions of drug prices on a large scale. Related drugs mainly
include immune regulation drugs, blood products, digestants and antineoplastic drugs. The
average price cut is about 17%. Second, hospitals continually extend the time to pay the drug
distributors, resulting in increasing pressure for cash flow of pharmaceutical distribution
enterprises. Third, along with changes of drug use, administration and tendering procurement
policies, enterprises face greater pressures for profits. Under such conditions as the rising
operating costs of retail enterprises , the policies about increasingly strict controlling costs in
health insurance , and the issuing of policies about no added costs in drugs by regulators, the
profit margin of retail pharmacies become increasingly smaller.
Chongqing pharmaceutical distribution market where Huabo Group is based, is one of the
top ten domestic markets in China. According to 2016 transaction data published by Chongqing
Drug Exchange, there are 577 pharmaceutical wholesalers, 43 drug retail enterprises and 10,500
retail pharmacies. Excluding distribution and allocation businesses among pharmaceutical
wholesalers, there are about 50 enterprises with sales revenue more than RMB 100 million for
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products selling to medical institutions, pharmacies and clinics. Most of the enterprises have
sales revenue of tens of millions RMB and they are invoicing circulation platform (The platform
refers to pharmaceutical circulation enterprise that can issue formal invoices. In pharmaceutical
industry, pharmaceuticals and customers are the most important resources. Sometimes, a team
or a natural person has core technology, but they are not willing to pay the cost to set up a
company. Therefore, they carry out the pharmaceutical sales business by aid of pharmaceutical
circulation enterprise, and pay some fees (company operating expenses, taxes, etc.) to the
platform, and the remaining profits are owned by the team or the natural person) Chongqing
pharmaceutical distribution market is characterized as numerous enterprises with small scales
and low profitability.
On December 30, 2016, Chongqing issued the Implementation plan of "two-invoice
system" for drug procurement in Chongqing public medical institution (trial), which has been
implemented since December 31, 2016. This document determines that all public medical
institutions (including public basic medical institutions) are required to fully implement the
“Two-Invoice System”. Enterprises get more opportunities than challenges to directly cooperate
with upstream manufacturers. This shows obvious development trends of the pharmaceutical
industry: pharmaceutical e-commerce (big data integration, moving to the massive health
industry), pharmaceutical logistics (third-party logistics), undertaking of medical service
functions, business development brought by in-depth medical system reform, which will
become new competitive advantages and profit growth points for the pharmaceutical
distribution industry.
Above all, the pharmaceutical distribution industry in which Huabo Group is engaged
shows as the characteristics of dynamism (constant change and reform), complexity (with
influence from government, technology and competitors) and hostility (competition and
consolidation) for its external environment. These attributes result in uncertainty of the external
environment, especially in adjustment and changes of government policies. On April 26, 2016,
the China State Council issued the 2016 List of major tasks in furtherance of the healthcare and
pharmaceutical reforms, requiring pilot provinces for comprehensive health care reforms to
promote the “Two-Invoice System” provincially (only one invoice will be issued respectively
from manufacturers to distribution enterprises and from distribution enterprises to medical
Institutions) and actively encouraging pilot cities for comprehensive public hospital reforms to
promote the system, so as to optimize drug purchasing and selling orders, reduce distribution
channels and support medical service price reforms. Thus, business concentration will be
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further improved. Promoted by the Chinese government policy of encouraging pharmaceutical
distribution enterprises to realize mass business by means of merger and acquisition, regulation
of the pharmaceutical distribution industry shows a large-scale trend. Under control of medical
insurance costs and implementation of tighter industry policies for hospitals, the growth of the
pharmaceuticals industry further slows down. It is expected that the industry growth rate in the
future will be close to that of GDP. In the period ahead, structural adjustment will be the
industrial trend and the pharmaceuticals industry will gradually pay attention from extensive
quantity growth to refined quality improvement.
3.2 Overview of Huabo Group
3.2.1 Introduction of Huabo Group
On April 25, 2002, the Chongqing Huabo Pharmaceutical Co., Ltd. (the predecessor of
Huabo Group) was founded. On August 15, 2005, Chongqing Huabo Pharmaceutical Co., Ltd.
held a stockholders' meeting and decided to increase the capital by RMB 9 million, thus the
registered capital increased from RMB 1 million to RMB 10 million. On January 9, 2006,
Chongqing Huabo Pharmaceutical Co., Ltd. held a stockholders' meeting and decided to change
the company name to Chongqing Huabo Pharmaceutical Group Co., Ltd. After many years of
development, Huabo Group expands its business scope so far to include drug wholesale; sale
of health food; wholesale of prepackaged food; wholesale of type II and III medical apparatus
and instruments; sale of daily-use chemicals and disinfection preparations (excluding
dangerous chemicals); cosmetics, market information consultant, acquisition of traditional
Chinese medicinal materials, storage of goods (excluding dangerous chemicals) and self-owned
house rent; sales of the following products: electric products, electric appliances, electronic
products (excluding electronic publications), household appliances, mechanical and electrical
products, sport equipment, experimental instruments/equipment/supplies, chemical products
(excluding dangerous chemicals), medical models, computer software/hardware and auxiliary
equipment, communication equipment (excluding satellite ground receiving and transmitting
equipment), science and education equipment, biological specimens, labor protection
appliances (excluding special labor protection appliances).
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Figure 3-4 Corporate Structure of Subsidiary Corporations in Huabo Group
After years of development, Huabo Group has formed a diversified business mode
focusing on drugs. This study mainly focuses on the pharmaceutical business of the group. The
main companies in the medicine fields of Huabo Group which are engaged in military health
service, agent allocation, commercial distribution, and pharmaceutical industries are discussed
as follows:
(1) Funded in 2002, Chongqing Huabo Pharmaceutical Group has been mainly engaged in
drug operations and sales since its establishment, and it is the controlling shareholder of some
companies as follows. At the end of 2014, the decision-making level in the group company
defined Huabo Pharmaceutical as an investment management company. Since it has long been
the in-stock supplier of the Medicinal Materials Station of General Logistics Department of the
People's Liberation Army, it mainly participates in bidding projects for materials of military
health services. At the begging of 2015, the group company has finished construction of
pharmaceutical e-commerce, and the website 366eyao.com has been launched on December 8,
2015.
(2) Chongqing Huabo Junwei Pharmaceutical Co., Ltd. (hereinafter referred to as “Huabo
Junwei”) is the main part of Huabo Group (shown in figure 3-4). It is positioned as military
health and logistics materials service enterprise. As a regional pharmaceutical commercial
enterprise with relatively complete business qualifications, it is mainly engaged in wholesale
business of drugs, medical apparatus and instruments, and it mainly conducts business by
procuring drugs, medical apparatus and instruments from drug manufacturing enterprises and
pharmaceutical distribution enterprises to sell by bulk to hospitals, primary medical institutions,
military medical procurement departments and pharmaceutical distributors. The business mode
of direct sales and purchasing of hospitals is to obtain distribution qualifications by participating
in centralized drug procurement bidding among medical institutions and then sell the contract
awarded products to medical institutions to make profits from price difference. Customers
mainly include primary, secondary or tertiary hospitals (hospitals in China are organized
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according to a 3-tier system that recognizes a hospital's ability to provide medical care, medical
education, and conduct medical research. Based on this, hospitals are designated as Primary,
Secondary or Tertiary institutions) or primary medical institutions. The company will sign
annual purchases and sales agreements with customers at the beginning of each year and has
established a long-term good partnership with major customers. Currently, major hospital
customers include: the Third Affiliated Hospital (Daping Hospital) of the Third Military
Medical University, the First Affiliated Hospital (Southwest Hospital) of Third Military
Medical University, PAP Corps Hospital of Chongqing, the maternal and child health hospital
of Changshou District of Chongqing, the Hospital of Traditional Chinese Medicine of
Changshou District of Chongqing, and the People's Hospital of Changshou District of
Chongqing. The company utilizes its network coverage rate formed in Chongqing and its
districts and counties to obtain the sole distributor right in these regions authorized by
pharmaceutical manufacturer, so as to expand the market share and regional coverage rate.
Currently, the company is the sole distributor in Chongqing of Guizhou Bailing Enterprise
Group Pharmaceutical Co., Ltd. The company obtains military health service suppliers
qualification by participating in open tendering organized by military health service
procurement departments, or the company becomes the in-stock supplier of the former General
Logistics Department of PLA, the Logistics Department of the former Chinese Armed Police
Force and the former military logistics departments of military regions to directly supply
materials. The company is establishing and developing the third-party logistics, warehousing
and distribution business, in order to provide more efficient warehousing and distribution
service for drug manufacturing enterprises and downstream customers, reduce pharmaceutical
distribution costs, and achieve a resource sharing model such as drug storage on a commission
basis, joint storage and co-administration, and third-party distribution, create benefits for the
company. The commercial activities of the company mainly include:
1) Supply materials for military health services, including:
a) The sole supplier of military first-aid packets for the liberation army and armed police;
the company has supplied first-aid packets for Chengdu Military Region, Guangzhou Military
Region, Shenyang Military Region, the Medicinal Materials Station of General Logistics
Department of the People's Liberation Army, Ningxia People's Armed Police (PAP) Corps ,
Gansu PAP Corps, Hainan PAP Corps, Chongqing PAP Corps, the Medicinal Materials Station
of General Logistics Department of the People's Armed Police. b) Military silver ion underwear;
The company introduces raw materials from America and commissions other manufacturers to
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produce samples for trial by the General Logistics Department of the People's Armed Police. c)
Participating in bidding projects of liberation army and armed police and performing material
assembly and distribution for contract awarded projects. d) Huabo Junwei is the sole in-stock
supplier of the Materials Purchasing Station of the General Logistics Department of the People's
Armed Police in Chongqing.
2) Direct sales to hospitals: a) the sole supplier of the PAP Corps Hospital of Chongqing;
b) the approved suppliers of the People's Hospital of Changshou District of Chongqing, the
Hospital of Traditional Chinese Medicine of Changshou District of Chongqing, the maternal
and child health hospital of Changshou District of Chongqing, and affiliated hospitals of the
Third Military Medical University.
3) Distribution: the sole distributor in Chongqing of products of Guizhou Bailing
Enterprise Group Pharmaceutical Co., Ltd., covering 10 Tier One suppliers and 76 Tier Two
suppliers, with the selling network covering administrative regions under the jurisdiction of
Chongqing.
3.2.2 Current status of Huabo Group
In the profit structure of Huabo Pharmaceutical, pharmaceutical distribution accounts for
85%, including earnings from directly distributing drugs to the PAP Corps Hospital of
Chongqing, more than 40 district hospitals and more than 700 pharmacies. Other 10% profits
come from earnings of bulk drug allocation, which mainly performs temporary drug allocation
for other pharmaceutical suppliers related to the business. The rest 5% profits mainly come
from earnings of proprietary pharmacies and agency incomes of some pharmaceuticals.
However, when compared with the largest pharmaceutical distribution enterprise in
Chongqing - Chongqing Pharmaceutical (Group) Co., Ltd. and the second largest- Chongqing
Tongjunge Co., Ltd., Huabo Pharmaceutical has no advantages over business scale and income.
The total drug sales of the above two enterprises take account of around 60% in the total market
share of Chongqing.
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Figure 3-5 Distribution of Major Clients in Huabo Group
As the industry concentration is constantly improving, the above two enterprises are easy
to further occupy the market with their scale advantages. Huabo Pharmaceutical is less
competitive, which is mainly reflected in the following aspects.
(1) The Chongqing Pharmaceutical (Group) Co., Ltd. and the Chongqing Tongjunge Co.,
Ltd. take control over upstream pharmaceutical manufacturing enterprises by merger and
acquisition. Thus these two companies have an advantage on the bargaining power against the
suppliers. However, Huabo Pharmaceutical has a relatively small scale and it is difficult with
current strength to take control over upstream pharmaceutical manufacturing enterprises.
Therefore, it has relatively weaker bargaining power against the suppliers. So that Huabo
Pharmaceutical will be in a passive position in case of fluctuations in drug prices.
(2) From the perspective of sales terminals, the Chongqing Pharmaceutical (Group) Co.,
Ltd. and the Chongqing Tongjunge Co., Ltd. have acquired the majority of hospital terminal
customers in Chongqing, which have become a stable marketing channel for pharmaceuticals.
In addition, the numbers of retail chain pharmacies of these two enterprises are far more than
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that of Huabo Pharmaceutical. Currently, Huabo Pharmaceutical has more than 600 franchised
retail pharmacies. However, most of these pharmacies do not depend on Huabo Pharmaceutical
for drug supply. They have business transactions with many other pharmaceutical suppliers.
Therefore, Huabo Pharmaceutical is less competitive than the above two enterprise both in the
number of terminal pharmacies and retail pharmacies.
(3) As for logistics and distribution capability, both the Chongqing Pharmaceutical (Group)
Co., Ltd. and the Chongqing Tongjunge Co., Ltd. have established large-scale pharmaceutical
logistics centers and have significant advantages over drug distribution. The proposed
pharmaceutical logistics center of Huabo Pharmaceutical is currently at an initial stage. It is still
a long time for Huabo Pharmaceutical to be able to compete with them. With the establishment
of the pharmaceutical logistics center of Huabo Pharmaceutical, its allocation capability for
bulk drugs will be further enhanced, and its capability to supply drugs to its chain pharmacies
and other parties with cooperative willingness will be further improved, which will help to
strengthen existing distribution channels.
Huabo Pharmaceutical faces a high degree of threats from competitors mainly due to
transformation and reform of the industry, which brings opportunities to new enterprises. The
bargaining power of customers is increasing, which is due to the increasing selectivity caused
by the increasing competition in the pharmaceutical distribution industry. However, customers
do not have a strong bargaining power on essential drugs and specific drugs. In terms of the
bargaining power of suppliers, due to the fierce homogeneous competition in the industry and
the construction of suppliers' distribution channels, the bargaining power of Huabo
Pharmaceutical is weakened accordingly. As for alternatives, although the external impact is
relatively small, the alternative e-commerce services brought by internet are increasingly
strengthened. Finally, from the perspective of current market scale, the Chongqing Tongjunge
Co., Ltd. has a large market share, while Huabo Pharmaceutical has no comprehensive ability
to compete with regional industry leaders. However, Huabo Pharmaceutical can form its unique
competitive advantages by adopting differentiated competitive strategies. The following figure
3-6 illustrates and summarizes the industrial context of Huabo Pharmaceutical.
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Figure 3-6 Analysis of Pharmaceuticals Industry Related to Huabo Group
3.3 Pharmaceutical business strategy of Huabo Junwei
The year 2009 was critical for China to vigorously promote the system of drug bidding
and tendering on Internet and the medical compensation system, and to abandon the dependence
on drug-sales to support hospital operation (Due to insufficient financial funding from
government, Chinese public hospitals have to make profits from selling drugs to patients to
maintain hospital operation which lead to many problems). Such policy changes cause certain
impact on implementation of original strategies in the enterprise. To adapt to the environment,
the company formulated the strategy of scale expansion. To realize the strategy, Huabo Group
explored markets for drug supply in hospitals vigorously in recent years and has obtained
certain achievements. It establishes cooperative relationship for drug supply with more than 20
hospitals in Chongqing and actively integrates resources from its retail pharmacies to make the
company bigger and stronger. The development practices in recent years show that, the
development orientation determined by the company at the beginning is correct and its
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understandings of its own characteristics, development goals and environment are in line with
objective practices. However, along with development and growth of the industry and the
implementation of Good Supply Practice (GSP) certification, the concentration rate of the
pharmaceutical distribution industry in Chongqing market has been increasing continually and
two large-scale pharmaceutical distribution enterprises occupy most of the market: the
Chongqing Pharmaceutical (Group) Co., Ltd. and the Chongqing Tongjunge Co., Ltd. Faced
with operating pressures such as declined profit margin, industry concentration, and
unprecedented challenges such as medical system reform and online finance, the company has
to make correct judgments on its market positioning and strategic development direction. The
two large-scale pharmaceutical distribution enterprises – the Chongqing Pharmaceutical (Group)
Co., Ltd. and the Chongqing Tongjunge Co., Ltd. have overwhelming advantages over both
market size and the capabilities of drug allocation and distribution. Most pharmaceutical
distribution enterprises are generally difficult to compete with them.
Huabo Group is designed to be a military-civilian integration development enterprise
which provides integrated distribution services on medical equipment and medical war material
for logistics organizations of the Chinese People's Liberation Army, the Chinese People's
Armed Police Force, and some local Armed Forces. Meanwhile, it is also engaged in the
research, development and production of medical equipment and it is gradually transforming
from a traditional pharmaceutical distribution company to an enterprise undertaking integrated
business operation of researching, producing and selling medicine as well as medical equipment.
At present, the pharmaceutical distribution industry is in a low-profit era. The company needs
to enhance its core competitive advantages of its primary operations, promote business
integration and business model innovation, so as to improve its competitive advantages in the
industry and achieve its brand effect.
Based on this, Huabo Pharmaceutical will combine integrated military-civilian
development, target tasks of overall construction of modern logistic and combat-support
disciplines and reforms of medical and health service institutions and adopt stable exchanging-
investment-for-market and integrating resource strategies, so as to establish a modern
pharmaceutical enterprise with a characteristic of military and civilian integration, and to
gradually develop into an integrated supplier for massive health services. In addition, the
“Health China” strategy is helpful for transformation and upgrading of pharmaceutical
distribution enterprises.
For Huabo Group, the implementation of “Two-Invoice System” will lead to
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transformation of its management mode. From the perspective of the industry, the urgent task
of pharmaceutical manufacturer enterprise in the implementation of the "Two-Invoice System"
is to find a suitable pharmaceutical distribution cooperation to issue the "First Invoice." Besides,
due to high cost, the direct medical distribution from pharmaceutical manufacturer companies
to county-level pharmaceutical distribution companies in each province is impossible, thus it is
required that the selected pharmaceutical distribution companies are equipped with terminal
networks that meet the needs of pharmaceutical manufacturer company. For pharmaceutical
manufacturer companies, after the business tax is replaced by Value-Added Tax (VAT), formal
invoices including marketing, service, and advertising expense are tax-deductible. The problem
is rooted in agents. Pharmaceutical manufacturer company which previously issued “lower-
nominal-amount-invoice” (the amount shown on the invoice is less than the actual amount) now
turns to -“higher-nominal -amount-invoice” (the amount shown on the invoice is more than the
actual amount. Besides, when issuing value-added tax invoices, pharmaceutical distribution
enterprises must obey the rule of issuing legal invoices after the business tax is replaced by
Value-Added Tax, so as to allow pharmaceutical manufacturer companies to get reimbursement
easily. The key point is the tax paid by pharmaceutical manufacturer companies and
pharmaceutical distribution enterprises have both increased, leading to lower profit. Besides,
for most enterprises, the most important and difficult problem is how to get these legal invoices.
Especially for small agents (small scale pharmaceutical distribution enterprises), they need
terminal promotion expenses. How to get proper invoices becomes the toughest task. However
this creates opportunities for Huabo to develop partnership with or to acquire the small players
in the industry.
Faced with a fiercely changing external environment, defender strategy may finally make
companies out of the market. Compared with defender strategies, analyzer strategy tries to
explore new development opportunities; however, their main business operations still focus on
traditional products and services. Besides, enterprises also face with huge impact of the
pharmaceutical industry reform. All these situations make enterprises adopting the analyzer
strategy be in a passive position in market competition. Therefore, faced with such fierce
environment, the only way for enterprises that want to maintain unique advantages in fierce
competition is to adopt prospector/innovative strategy. Such strategy will continually push the
enterprises make innovations in business strategies, processes, technologies, products, and
organizations. Through products and market development, enterprises increase market share
and move forward in the direction of large-scale pharmaceutical commerce and the goal of
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
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long-term survival and development will be achieved finally.
Part of a prospector strategy by Huabo is to pursue mergers and acquisitions (M&A).
Through M&A, enterprises can realize economies of scale by absorbing main operations,
network, channels, and human resources of the merged company. Those sources will have a
major impact on enterprises development and strategy adjustment. Due to fierce competition in
the pharmaceutical market, if Huabo cannot seize the opportunity to merge small enterprises in
the industry, the competitors will take the opportunity. In addition, compared with large-scale
pharmaceutical distributors in the industry, Huabo does not have absolute advantages in its scale
and operating capabilities. Therefore, mergers and acquisitions strategy leading to operation
scale expands is a necessary choice for Huabo Group to compete with its competitors in the
industry. Furthermore, the competition in China's pharmaceutical distribution industry is fierce
and the profit will be further reduced; scale operation will gradually become the main profit-
gain method. And then, the continuous opening up of the medical distribution market and the
active cultivating of large-scale pharmaceutical distribution companies by national policies
have further increased the concentration of the pharmaceutical distribution industry. Such kinds
of market environment make scale operation become feasible. Finally, Huabo Group has a
word-of-mouth and excellent brand effect. Therefore, other enterprises in same industry are
willing to work with Huabo.
Another part of prospector strategy by Huabo Group is strategic alliance, because strategic
alliance enables Huabo to cooperate extensively with other enterprises even though Huabo is
restricted by enterprise’s resources and abilities in market expanding process. Besides, the
development of pharmaceutical distribution companies also needs to minimize market risks by
extensive market cooperation. In market expanding process, the company will select partners
based on principle of resources complementary. Sometimes, in order to enter a new market,
enterprises may also cooperate with competitor so as to mutually benefit from cooperation. In
addition, Huabo Group needs to focus on establishing good relationship between suppliers and
customers, through the establishment and maintenance of various such kinds of friendly
relationships to enhance the stability of the entire supply chain and improve its core
competitiveness. Specifically, Huabo plans to develop the following.
(1) Alliance with armed-police medical and sanitary institutions
With the support of the Armed Police Headquarters, the cooperation model with
Chongqing Armed Police Corps Hospital will be replicated with the Sichuan Armed Police
Corps Hospital. Because the Armed Police Corps Hospital Preparedness Division has to deal
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
56
with emergency frequently, their demand on timely and quickly medical distribution is high.
Huabo Pharmaceutical Group will acquire a pharmaceutical wholesale enterprise in Chengdu,
a city next to Chongqing and employ local-oriented management and operation mode by
distributing medical resources in the nearest place, paying local tax and hiring local workers.
Meanwhile, Huabo Pharmaceutical Group strives to become one of the investment managers
of these institutions. Therefore, it undertakes the mission of medical and service supply to those
medical and sanitary institutions. By taking these efforts, it further promotes the in-depth
development of the pharmaceutical e-commerce and pharmaceutical logistics management
system. Consequently, Huabo Pharmaceutical Group is on its way to become investors, service
providers as well as data integrators in servicing the armed-police medical and sanitary
institution
(2) Development of Pharmaceutical Logistics Center
Taking local features and geographical environment of various counties in Chongqing into
consideration, based on the guidance of “one logistics center + two logistics bases”, Huabo
Pharmaceutical Group has established a logistics center at the Chongqing Highway logistics
base, and then, another two logistics bases are built in east and west of Chongqing to realize the
logistics coverage of the surrounding provinces and cities in and nearby Chongqing.
(3) Development of Pharmaceutical E-Commerce
First, Huabo will integrate current product resources, medical institution resources
(doctors, pharmacists, clinical information and patients), chain terminal outlets (nearly 700
chain drugstores), and commercial distribution networks; carry out targeted and differentiated-
orientated platform operations; integrate offline operations with online sales and construct
online platforms and offline logistics centers to achieve information sharing within Chongqing
area on logistics and funds; second, followed by the promotion of national policies and the
increasing of customers, Huabo will establish supply chain network of drugs, service network
of physician/pharmacist, networks of targeted consumers as well as offline logistics and
services stretching into major provincial capital cities and county-level units nationwide.
Finally, rooted in drug supply and medical services, Huabo try to transfer the platform into a
comprehensive health platform including medical service, supply chain collaboration and big
data operations. Thus the Group can realize its business promotion from a product supplier to a
comprehensive pharmaceutical corporation providing various health services. And it will also
maintain its profits by Supply Chain Finance, value-added service value, and big data marketing.
In the next three years, Huabo Group will invest RMB 717 million in 1) construction of
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
57
pharmaceutical logistics center with RMB 360 million; 2) develop military first-aid packets and
silver ion underwear, and make them to be official military equipment: RMB 20 million planned;
3) construction of pharmaceutical e-commerce platform with RMB 35 million; 4) acquisition
of regional pharmaceutical distribution enterprises; 5) minimum working capital: RMB 300
million.
3.4 Human resource management in Huabo Group
3.4.1 Background of human resource management in Huabo Group
(1) On the early days from year 2002 to year 2003 when the Group was initially
established, the entire Group was in its cradle period. At that time, the Group did not have a
human resources management department and did not have the concept of introducing talents.
(2) From 2004 to 2006, the Group entered into its development period. After earning some
certain customer groups in the development period, the Group got its commercial reputation.
At this stage, the Group introduced its talents through its employees’ affection and friendship,
and at this stage, employing person by favors and kinship was common phenomenon. Therefore,
the Group in this stage was similar to a family enterprise. Usually, recruitment was conducted
through unofficial recruiting paths such as hiring people who was introduced to employers by
a friend. From a static point of view, at this stage, the Group had a large number of labor
resources, but the quality of the employee was not high. And its staff management was
administrative imperative management which indicated that the employees were only the
production carriers and had not yet been seen as the key productive factors. The managers of
the Group treated human resources as labors to be managed and controlled. Although the human
resources management department had been initially established, this department was mainly
responsible for daily routine work including personnel appraisal, file management, and salary
payment. Besides, there was no clear performance appraisal and promotion system in position
adjustment. The Group was short for an effective incentive system and a competitive
employment mechanism. The positions were mainly adjusted by administration department.
(3) With the further development of the Group (2007-2015), it started to introduce talents
into its key positions. At this stage, employees were no longer the subject of management and
control. Huabo Group also began to improve its human resources management from aspect of
recruitment, staff training, performance appraisal, and compensation management. It can be
seen that the functions of its human resources department were more specialized with particular
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
58
emphasis on the performance assessment of employees. However, the company's salary system
was still in primary shape. Only the distribution method had been changed. Systematic salary
management system had not been established. The salary management system had no clear
rules and regulations; besides, comprehensive job analysis system and performance appraisal
system had not been established either.
(4) As a joint-equity enterprise, the Group became listed company since June 2016; at this
stage, the company's reputation and image had been further improved and the company had
begun to introduce outstanding talents from large and excellent companies. The understanding
of human resources management of Huabo Group had undergone major changes, and there was
huge improvement in human resources management and development. Human resources
management had transferred to be an important part of enterprise management. The functions
of human resource management departments were transferred from traditional staff
management to strategic human resource management. The Group had initially established a
good human resources management system with talent introduction, evaluation, training,
performance appraisal and salary incentive system being the main duties. However, with the
economic transformation and development in China, enhancing independent innovation
capability is the most important aspect in China’s economic transformation. And because of
pharmaceutical and health system reform, the competition in the pharmaceutical industry is
becoming increasingly fierce. This requires companies to build more effective model to
organize employees and optimize talent structure so as to promote the long-term development
of the company.
3.4.2 Current status of human resources in Huabo Group
In terms of organizational structure, stockholders meeting is the highest authority in Huabo
Group. The company has board of directors and board of supervisors which are responsible for
assisting stockholders meeting. The Group has purchasing and supply department, logistics and
distribution department, medical support department, quality management department,
administrative logistics department, human resources department, finance department and other
departments. Figure 3-7 represents organization structure of Huabo Group
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
59
Figure 3-7 Organization Structure of Huabo Group
Chongqing Mingji Technology Co., Ltd., a subsidiary company of Huabo Group, is fully
developing two medical e-commerce platforms named as B2C and B2B; combined with the
logistics center which is still under construction, Huabo Group strives to adopting a
development strategy including online information release with offline cooperation. The
existing offline stores are used as show rooms as well as delivery and pick up sites to give full
play to the advantages of hypostatic stores. At the same time, the medical mall will be used as
a marketing platform to promote and popularize commodities so as to attract a large number of
online consumers. With the support of offline pharmacies, the Group vigorously develops
online platforms and online marketing.
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
60
Figure 3-8 Organization Structure of B2C Platform of Pharmaceutical E-commerce Enterprises
As shown in Table 3-2, over 63.6% of Huabo Group's senior executives have at least a
bachelor degree, and 36.36% of them have at least a master degree. Furthermore, Executive 7
and Executive 1 have degree of executive master of business administration from the School of
Economics and Business Administration of Chongqing University. This is helpful in making
Huabo Group aware of the importance of human resources.
As indicated in Table 3-2, 28.3% of employees in Huabo Group have college degree; 65.03%
of them own undergraduates degree; 6.67% of them possess master degree.
Academic backgrounds of current employees of Huabo Group cover not only pharmacy,
logistics management and information management which are required for business
development but also business administration, trade economy, finance & accounting, and
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
61
marketing which are related to enterprise operation.
Table 3-2 TMT of Huabo Group
Name Position Gender Age Education
Background
Receive
Salary in
the Group
or Not
Executive 1 General Manager Female 43 Master Yes
Executive 2
HR and
administration
director
Female 44 Degree Yes
Executive 3 CFO Female 43 Master Yes
Executive 4 Director;
Deputy General
Manager
Male 43 College
Degree Yes
Executive 5 Deputy General
Manager Female 35 Bachelor Yes
Executive 6 Secretary of the
board Female 27 Degree Yes
Executive 7 Chairman Male 42 Master Yes
Manager 1
Chairman of the
Board of
Supervisors
Female 29 Degree Yes
Manager 6 Supervisor Female 28 College
Degree Yes
Manager 8 Supervisor Male 36 Bachelor No
Manager 9 Director Male 58 College
Degree No
Given the significant transformation of the pharmaceutical distribution industry, and the
strategy adjustment that Huabo has to adopt, human resource management of Huabo Group
should meet the need of its future business restructuring and optimizing by aligning with the
business strategy. In the future, Huabo Group needs to pay more attention to human resource
input and improve its incentive mechanism. This will not only help employees to exert their
subjective initiative, but also help retain human capital.
3.5 Summary
Chongqing pharmaceutical distribution market has the following characteristics in its
extensive management mode: the number of companies in the market is large but their scale is
small, besides, most companies have single competition method and low profitability. Huabo
faces such external market environment. From the establishment of the Group in 2002 to now,
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
62
its human resources department has three development stages: non-existence, initial
establishment and function specialization; now the Huabo has a profound understanding of
human resource management and its human resource management has been further improved.
Human resources management had transferred to be an important part of enterprise
management. The functions of human resource management departments were transferred from
traditional staff management to strategic human resource management. The Group had initially
established a good human resources management system with talent introduction, evaluation,
training, performance appraisal and salary incentive system being the main duties. The Group
also increases its market share through product development and market expansion. While it
focuses on developing a large number of new products, market customization is also
emphasized. And the Group vigorously expanded the market of hospital drug supply. Now it
basically establishes a team that has abundant market competition experience, besides, more
than 80% of its employees have at least college degree. The current recruitment process of
Huabo has interview; besides, it also provides training programs for employees and explores
how to make good human resource planning. Furthermore, a performance management system
focusing on financial goals was also established. Generally speaking, Huabo has a good ability
to manage its human resources. However, with the economic transformation and development
in China, enhancing independent innovation capability is the most important aspect in China’s
economic transformation. And because of pharmaceutical and health system reform, the
competition in the pharmaceutical industry is becoming increasingly fierce. This requires
companies including Huabo to build more effective model to organize employees and optimize
talent structure so as to promote the long-term development.
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
63
Chapter 4: Research Design and Methods
The structural reform in the pharmaceutical distribution industry has entered a deepening
stage, leading to great changes in the pharmaceutical distribution industry. In this study, Huabo
Group will be taken as the research object to explore strategy typology of a typical enterprise
in a dynamic changing environment and the alignment of strategy and human resources
management alignment in pharmaceutical distribution industry. Specifically, the case study of
Huabo Group of pharmaceutical distribution industry was based on the following reasons:
(1) The structural reform in the pharmaceutical distribution industry has entered a
deepening stage, so that the pharmaceutical distribution industry is facing great changes with
increasing industry concentration in this industry. Such changes of external environment will
generate great impact on business strategies for the enterprises in this sector, and also inevitably
force enterprises to adjust strategies to adapt to such changes. Therefore, in this regard, strategy
adjustment of the pharmaceutical distribution enterprise provides interesting case for researches
on strategy typology.
(2) As a private pharmaceutical distribution company with regional influence, Huabo
Group has been adjusting strategies to adapt to external changes and has been experiencing the
challenges of aligning human resource management with strategy adjustment, providing first
hand data about alignment of human resource management and strategy evolution.
(3) Lastly, the author has been engaged in management and business work in the
pharmaceutical distribution industry for a long time with an in-depth understanding of the
industry, and more importantly has the accessibility to collect data from various source inside
and outside Huabo Group.
The following part will discuss the research methods, including case study, interview,
focus group, and survey that are used in this study.
4.1 Case study method
The case study is an effective method to explain questions about “how” and “why”. As an
exploratory case study, this study adopts research strategies which are suitable for single case
study. Such research method is helpful for exploring conditions and problems in management
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
64
practices. By thorough analysis of the case, problems proposed in the research framework will
be examined in an in-depth way. In this study, the single case research method is adopted to
explore and examine the alignment of human resources management and corporate strategy.
4.2 Interview and focus group
In order to deeply understand existing problems about strategy and human resources
management alignment in Huabo Group, semi-structured interviews about current strategy
typology and human resources management have been conducted among managers and
employees in Huabo Group. Following individual interviews, focus groups were conducted to
consolidate the data collected from those interviews.
4.2.1 Sample selection
When selecting the samples for interview and focus group, interviewees’ gender, tenure at
the company, department/functions and position are taken into account to make sure the sample
is representative with good knowledge of the subject (see Table 4-1). The interviewees in the
sample range from ordinary employees to top executives, and they are from different
departments and function such as marketing, procurement and administration. Specifically, in
the interview sample, 6 are top executives, 8 are middle-level managers and 12 are ordinary
employees; by gender, 7 persons are male and 19 persons are female.
4.2.2 Interview and focus group
Guided by research questions and literature review, and based on basic human resources
conditions in Huabo Group, an interview outline was developed (Appendix 1). The interview
outline include enterprise strategy, corporate structure and human resource management (e.g.,
employee recruitment and selection, employee training and development, performance
appraisal, compensation incentive, employee promotion) and other aspects of Huabo Group. To
get the most out of interview, the interview outline is specifically developed for different group
of interviewees, which means that different interview outlines for different group of
interviewees. Specifically, the interviewees consist of the following groups: including 1) top
executives: General Manager, Deputy General Manager and Finance Chief Officer); 2) middle
management: HR and Administration Director, Head of Procurement Department, Head of
Logistics Department, Head of Marketing Department and Finance Manager; 3)frontline
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
65
employees.
In the interview with top executives, the author focus on current strategies of Huabo Group,
participation of its Human Resources Department in designing strategies, current alignment of
strategy and human resources management, the management level of the Human Resources
Department and their expectations of Human Resources Department in Huabo Group. During
interviews with General Manager and HR & Administration Director, the follow-up questions
for them went deeper, because they have worked for many years in the company and are more
knowledgeable with the company due to their tenure and positions.
In the interview with the HR & Administration Director, the author obtained data not only
on the employee composition, work pattern and efficiency of the Human Resources Department
but also on this department’s linkage with the strategies. In addition, the author observed and
assessed the competency of the HR & Administration Director during the interview. In the
interview with General Managers in business departments, the author focused on the service
quality and business familiarity of the Human Resources Department.
Lastly, in the interview with frontline employees, the author tried to understand on their
job satisfaction, loyalty and their experience in aspects of recruitment and selection, employee
training and development, performance appraisal, compensation incentive, promotion
opportunities and ladders, team building and so forth.
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
66
Table 4-1 Basic Information of Interviewees
S/N Name Gender Title Years of
Working Functional Department
1 Executive
1 Female General Manager 12 Management
2 Executive
2 Female
HR and Administration
Director 10 Management
3 Executive
3 Female Chief Financial Officer 10 Management
4 Executive
4 Male Vice general manager 18 Marketing
5 Manager 1 Female
Deputy Manager in
Department of Sales and
Purchasing of Hospital
10 Management
6 Manager 2 Male Head of Procurement
Department 16 Management
7 Manager 3 Female Financial Manager 4 Professional
8 Staff 1 Female Human Resources Specialist 4 Professional
9 Staff 2 Male Purchaser 15 Procurement
10 Manager 4 Male Head of Commercial
Distribution Department 14 Marketing
11 Staff 3 Male Driver in Logistics Department 5 Professional
12 Staff 4 Female Purchaser 2 Procurement
13 Staff 5 Female Purchaser 1 Procurement
14 Staff 6 Female Accountant 3 Professional
15 Staff 7 Female Cashier 2 Professional
16 Executive
5 Female
Deputy General Quality
Manager 3 Management
17 Manager 5 Male Medical Device Business
Department 1 Management
18 Executive
6 Female Secretary of the Board 2 Professional
19 Staff 8 Female Quality Control Officer 1 Professional
20 Staff 9 Female Invoice Clerk 1 Marketing
21 Manager 6 Female Person in Charge of
Information Disclosure 8 Professional
22 Manager 7 Female Head of Logistics Department 14 Management
23 Staff 10 Female Customer Service Staff 2 Marketing
24 Staff 11 Female Indoor Staff 1 Marketing
25 Staff 12 Female Administrative Commissioner 1 Professional
26 Manager 8 Male Supervisor 2 Management
In order to guarantee objectivity and effectiveness of interviews, one-on-one in-depth
interviews are carried out first with top executives (Table 4-2), then with middle management
(e.g. HR & Administration Director, General Managers in business departments, line managers
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
67
and lastly ordinary employees in Huabo Group. Following interview, the top executive and
middle management and ordinary employees are mixed and divided into groups to carry out
focus group session (Table 4-3).
Through focus groups, the author collected data on operating efficiency of Huabo Group,
working efficiency of every departments, service quality and business familiarity of Human
Resources Department, as well as alignment of the Human Resources Department with the
businesses of business department. Some interviewees, such as Head of the Procurement
Department and Finance Manager attended not only One-on-one interviews but also focus
groups
4.2.3 Interview process
Before formal interviews started, interviewees were informed the interview purpose and
ensured that questions related to state politics, morality, ethics and individual privacy were not
covered. It was made clear that the interview information is used for academic research only
thus to remove doubts of interviewees and guarantee truth and objectivity of interview results.
Guided by the interview outline, ten semi-structured interviews were conducted with
general manager, key managers and one frontline employee (Table 4-2), each from 45 minutes
to one hour with a total of seven hours. At the end of interviews, the author thanked interviewees
and asked them whether there were any omission and supplement in their answers.
After one-on-one interviews, three focus group sessions (Table 4-3) were conducted and
each lasted about 3 hours and half. Information was recorded in both interviews and focus group.
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
68
Table 4-2 One-on-one Interviewee List
S/N Name Department Title Time Location Duration
1 Executive
1 Management General Manager
2017.10
.10
Meeting Room in
the Company 1 h
2 Executive
2 Management
HR and
Administration
Director
2017.10
.10
Meeting Room in
the Company 1 h
3 Executive
3 Management
Chief Financial
Officer
2017.10
.10
Meeting Room in
the Company 45min
4 Executive
4
Marketing
position
Vice general
manager
2017.10
.10
Meeting Room in
the Company 1 h
5 Manager
1 Management
Deputy Manager
in Department of
Direct Sales &
Purchasing of
Hospital
2017.10
.10
Meeting Room in
the Company 45min
6 Manager
2 Management
Head of
Procurement
Department
2017.10
.10
Meeting Room in
the Company 45min
7 Manager
3
Professional
position Financial Manager
2017.10
.11
Meeting Room in
the Company 45min
8 Staff 1 Professional
position
Human Resources
Specialist
2017.10
.11
Meeting Room in
the Company 45min
9 Executive
6
Professional
position
Secretary of the
Board
2017.10
.12
Meeting Room in
the Company 45min
10 Manager
8 Management Supervisor
2017.10
.13
Meeting Room in
the Company 45min
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
69
Table 4-3 List of Interviewee in Group Discussion
S/N Name Department Title
Group No. 1
Time 2017.10.16
Location Meeting Room in the Company
Duration 3.5h
1 Executive
1 Management General Manager
2 Executive
2 Management HR and Administration Director
3 Executive
3 Management Chief Financial Officer
4 Executive
4 Marketing position Vice general manager
5 Manager 1 Management
Deputy Manager in Department of
Direct Sales and Purchasing of
Hospital
6 Manager 2 Management Head of Procurement Department
7 Manager 3 Professional position Financial Manager
8 Staff 1 Professional position
Group No. 2
Time 2017.10.16
Location Meeting Room in the Company
Duration of 3.5h
9 Staff 2 Procurement position Purchaser
10 Manager 4 Marketing position Head of Commercial Distribution
Department
11 Staff 3 Professional position Driver in Logistics Department
12 Staff 4 Procurement position Purchaser
13 Staff 5 Procurement position Purchaser
14 Staff 6 Professional position Accountant
15 Staff 7 Professional position Cashier
16 Executive
5 Management Deputy General Quality Manager
17 Manager 8 Management Supervisor
Group No. 3 Time 2017.10.17
Location Meeting Room in the Company Duration 3.5h
18 Manager 5 Management Medical Device Business
Department
19 Executive
6 Professional position Secretary of the Board
20 Manager 6 Professional position Person in Charge of Information
Disclosure
21 Staff 9 Marketing position Invoice Clerk
22 Staff 8 Professional position Quality Control Officer
23 Manager 7 Management Head of Logistics Department
24 Staff 10 Marketing position Customer Service Staff
25 Staff 11 Marketing position Indoor Staff
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
70
26 Staff 12 Professional position Administrative Commissioner
4.2.4 Data analysis from interview and focus group
After interviews, record materials were analyzed. First, distinguish background materials
and facts. Due to their speaking habits, interviewees always provided materials which are mixed
with facts and background information. List the background materials separately to avoid
misleading; list facts separately to perform analysis. Next, interviews were transcribed into
written texts. Third find common themes in the data to identify patterns and similarities that
could be aligned with the research questions.
4.3 Questionnaire method
The questionnaire method is a common way used for management researches. To
complement and validate the data from interview and focus group, this study used questionnaire
to collect quantitative data.
4.3.1 Questionnaire design
The questionnaire design of this study involves the following stages:
(1) Literature review: Study a large number of existing literatures, collect and prepare the
scale.
(2) Seek for opinions from experts and scholars. After the questionnaire is drafted, the
opinions of tutor, experts in strategy field as well as the opinions of top executives in the
enterprise has been asked on questionnaire form, structure and language expressions. Then, the
questionnaire draft is amended according to their suggestions to prepare a formal questionnaire
for this research.
4.3.2 Questionnaire contents
4.3.2.1 Measurement of strategy category
Based on previous research results, the Miles and Snow strategy typology is used for
strategy types in the questionnaire which measures business strategies. Under the background
of Chinese pharmaceutical system reform, the market is changing quickly. In this study, it is
important to understand how the pharmaceutical distribution firm (in the case, Huabo Group)
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
71
respond and adjust its strategy. Specifically, three questions (Questions 6-8) in the questionnaire
were used to measure the strategy in Huabo Group.
Questions 6-8 for measuring the strategy are as follows:
6. In your opinion, the enterprise is under which stage:
○ A. Entrepreneurial stage. The enterprise is newly established with unstable
enterprise performance. It concentrates capitals and energies on product and market
development, with financial strain and small market share.
○ B. Development stage. The enterprise provides stable products and services. Its
production is on track and benefit increases rapidly. The enterprise begins to take shape with a
certain market share and gradually enters the stage of rapid development.
○ C. Mature stage. The enterprise has a fixed product or service structure and stable
enterprise benefits and market share with its development slowing down. Therefore, it has to
develop new products and look for new growth points.
○ D. Decline stage. Product or service market shrinks and enterprise benefits reduce.
7. Enterprise strategy characteristics are generally shown in the following three types:
A) Type A enterprises maintain a certain market in related field and provide relatively
stable products and services. In general, enterprises of type A are not market development
prospectors in the industry. These enterprises attach little importance to impacts of market
changes on enterprise operations. Instead, they focus on maintaining existing markets.
B) Type B enterprises selectively enter promising new markets while they maintain
relatively stable markets. However, they rarely become prospectors in the industry. Enterprises
of Type B pay great attention to behaviors of type C enterprises (the next item). They try to
compete with other types of enterprises such as type C through cost control and better services.
C) Type C enterprises experience great changes in products and markets. They always try
to become prospectors in market, although their efforts sometimes may not succeed. They
respond quickly to early market demands and opportunities.
Please review operation changes in past 2 years and predict possible changes in next 2
years in Huabo Group. Please select the type which best represents strategic characteristics of
Huabo Group from 1---6 (small number represents small changes, while large number
represents great changes).
8. Which type do you think Huabo Group belongs to? ○ A ○ B ○ C
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
72
4.3.2.2 Measurement of human resource management
Different scholars use different methods to measure human resources management and
their measurement aspects are also different. Li (2002) measures human resources management
from four aspects: recruitment, performance appraisal, and employee training as well as
compensation strategy. Zhou (2005) measures it from six aspects: human resources planning,
appointment, performance appraisal, compensation, human resources development and labor-
capital relationship. Scheuler and Jackson (1987) measure it from five aspects: human resources
planning, appointment, appraisal, compensation and education training. Gomez-Mejia (1988)
measures from six aspects: working process, appointment, labor turnover, performance
appraisal, education training and compensation.
This research aims at investigating human resources management in Huabo Group. The
human resources management was measured with the scale proposed by Lee, Lee and Wu (2010)
because eight human resources management practices are included in this scale: recruitment,
training, appraisal, compensation, staff relations, employee’s sense of belonging, satisfaction
and stay intention of employee (see Table 4-4 on page 74). In total, 28 questions (from Question
9 to Question 36) were included to measure the human resources management in Huabo Group:
Questions 9-12 to measure recruitment practices; questions 13-17 to measure employee training
and development; questions 18-20 to measure employee appraisal practices; questions 21-23 to
measure compensation management; questions 24-27 to measure management of staff relations;
questions 28-30 to measure employee satisfaction; questions 31-33 to measure employee sense
of belonging; questions 34-36 to measure employee loyalty in the group. All the 28 questions
will be evaluated based on 1-7 Likert scale, representing from “strongly disagree” to “strongly
agree”.
4.3.3 Collection of questionnaire data
4.3.3.1 Data collection
From March 2017 to June 2017, 120questionnaire were distributed to Huabo Group
employees. After removing incomplete questionnaires, 102 valid questionnaires were collected
and the valid response rate is 85%.
4.3.3.2 Description of questionnaire samples
Among respondents, there are 53 males and 49 females by gender; and the respondents
numbers of the Human Resources Department, the Logistics Department, the Finance
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
73
Department, the Marketing Department are 16, 10, 22, 12 and 23 respectively; in addition, there
are 19 persons from other departments (such as the Quality Inspection Department and the
Customer Service Department); by positions, there are 11 top executives, 15 middle-level and
line managers and 76 ordinary employees; by years of working, 31.37% of the respondents
have worked in the company for less than 3 years, 37.46% of them have worked in the company
for 3-5 years, and other respondents have worked in the company for more than 5 years. As for
educational background, there are 5 persons with high school degree or below, 27 persons with
college degree, 57 persons with bachelor degree and 13 persons with master's degree or above
(see Table 4-5).
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
74
Table 4-4 Measurement Items of Human Resources
Recruitment 9. The company requires job seeker to take written tests before
recruitment
10. The company performs interviews for job seekers before recruitment
11. The company prefers internal staff once a position is vacant
12. The company provides explicit job description for recruitment
Training 13. The company provides rich abundant training activities for
employees
14. Employees in the company usually need to participate in training
programs every 1-2 years
15. The company provides formal trainings for new employees to teach
them working skills
16. The company provides capable employees with promotion prospects
17. The company provides formal trainings for employees to increase
their chances of promotion
Appraisal 18. The company performs formal performance appraisals
19. The company uses objective data for appraisal
20. The company gives rewards and punishments to employees
according to their performance appraisal results
Compensation 21. The company implements an incentive system to encourage
employees to achieve company goals
22. The company reasonable rewards persons contributing to the
company
23. The company provides salaries and welfares higher than those in
other peer companies
Employment
Relationship 24. The company takes advices from management team members before
making a decision when it settles a matter
25. The company encourages employee teams to try to solve problems
on their own as much as possible
26. Over the past six months, the company has adjusted some of its
practices according to employee opinions
27. The company regularly issues its goals or plans to employees
Employee Satisfaction 28. I would like to recommend my friends to work in Huabo Group
29. In general, I'm very satisfied with my work in Huabo Group
30. I'm willing to reject a job with higher salary in order to stay at
Huabo Group
Employee Sense of
Belonging 31. I would like to work harder to help the company succeed
32. I'm proud to work in Huabo Group
33. I have a strong sense of belonging in Huabo Group
Employee Loyalty 34. I plan to continue my career in Huabo Group
35. I will not leave Huabo Group for at least the next 12 months
36. I will not consider looking for a job outside within half a year
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Table 4-5 Personal Information Statistics of Survey Respondents
Frequency Percentage Valid Percentage
Male 53 52 52
Gender Female 49 48 48 In total 102 100 100
Top management 11 10.8 10.8
Position Middle & line
managers 15 14.7 14.7
Employee 76 74.5 74.5 In total 102 100 100
<3 (excluding) 32 31.37 31.37
Years of
Working >5 (including) 32 31.37 31.37
3-5 years 38 37.46 37.46 In total 102 100 100
High school degree
or below 5 4.9 4.9
Education Junior college
degree 27 26.5 26.5
Bachelor's degree 57 55.9 55.9
Master degree or
above 13 12.7 12.7
In total 102 100 100
4.4 Validity and Reliability
Using framework proposed by Gibbert et al. (2008) for an investigation of the
methodological rigor of case studies, details on the measures that were used in this study are
shown in Table 4-6 in order to ensure validity and reliability.
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76
Table 4-6 Validity and Reliability Criterion Measure Treatment within study Fulfillment
Internal
validity
Research
framework derived
from literature
Basic frameworks are based on
Miles and Snow (1984) and
Schuler (1989), as well as the
empirical study by Tan (2002).
Yes
Construct
validity
Data triangulation
Data collected from three sources:
face-to-face interviews; 3 focus
group sessions; and quantitative
survey
Yes
External
validity
Rationale for the
case study selection
Selection of pharmaceutical
distribution industry in emerging
economy in China that experience
a transitional environment for
strategic management; Selection
of Huabo group, a typical private
enterprise grown from the
industry.
Yes
Details on the case
study context
Detailed industry and company
profiles were provided in Chapter
3, illustrating the study context for
the research subject.
Yes
Reliability
Organization’s
actual name given
Actual name of the case study
company was given for
transparency; Official statistics
from government and industry
were also provided.
Yes
Interviewees actual
name given
Actual names of interviewees
were given
Yes
4.5 Summary
This study used a case study mainly with both qualitative method (interview and focus
group) and quantitative method (questionnaire) to examine the business strategy and human
resources management alignment in pharmaceutical distribution enterprises in China. The
interviews mainly focus on c strategy and human resource management in Huabo Group to
investigate how managers and employees understand and perceive the current strategy and
operation of human resources management, and to identify the existing problems of strategy
and human resources management alignment in the Group. In addition, questionnaires were
used to collect data on how employees in the Group perceive the company’s strategy and human
resource practices.
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77
Chapter 5: Strategy and Human Resources Management
Alignment Analysis in Huabo Group
This chapter analyzes the data from interviews and questionnaires to explore Huabo’s
strategy, to examine the alignment of human resource management and its chosen strategy, and
to understand the gaps and issues in the alignment.
5.1 Analysis of interviews information
Through processing the data from one-on-one in-depth interviews and focus groups, this
study finds out the existing problems in alignment of Huabo Group's strategy and human
resources management, after identifying its strategy typology.
5.1.1 Strategy of Huabo Group
Huabo Group is designed to be a military-civilian integration development enterprise
which provides integrated distribution services on medical equipment and medical war material
for logistics organizations of the Chinese People's Liberation forces, the Chinese People's
Armed Police Force and some local Armed Forces. Meanwhile, it is also engaged in the research,
development and production of medical equipment when it is gradually transforming from a
traditional pharmaceutical distribution company to a company undertaking integrated operation
of science, industry, and trade. Among our interviewees, all six senior executives, commercial
distribution manager, head of procurement section and two ordinary employees believe that
Huabo Group adopts prospector strategy. However, only five among the six senior executives
are familiar with strategic orientation and strategic objectives of Huabo Group. These five
senior executives believe that the Group adopts the prospector strategy and in their opinion the
Group is also changing from a traditional medical distribution enterprise to an enterprise
focusing on pharmaceutical research, development and sales. In order to improve its
competitive advantages in the industry and achieve its brand effect, the Group also starts to
enhance its core competitive advantages of its primary operations, promote business integration
and business model innovation. It is worth noting that the ordinary employees as well as the
commercial distribution managers are still unclear about the Group’s current strategic
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
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orientation and strategic goals. In particular, the financial manager and five staff representatives
believe that Huabo currently adopts defender strategy, while the head of Direct Sales and
Purchasing of Hospital and three staff representatives believe that the strategy is analyzer.
Overall, the majority of interviewees agree that Huabo is pursuing prospector strategy,
particularly the senior executives.
5.1.2 Alignment status of strategy and human resource management of Huabo Group
Through focus group, this study asked the opinion of those senior executives interviewed
on the alignment of Huabo’s human resource management and strategy. From their words, this
study finds out several problems in the alignment of strategy and human resources management
of Huabo Group.
First of all, the human resources infrastructure is not yet able to meet the needs of its
business development and the Group is also short of professional technician to support its future
development. The sustainable development of its pharmaceutical business needs support of
talents from fields of pharmaceutical, logistics, and business management. However, the Group
still lacks talents with these professional backgrounds currently. As the Group increases its
cooperation with medical institutions and tries to improve the quality of its retail pharmacy
services, the Group’s demand on pharmacy talents has been increased; especially demand on
those experienced pharmacists. In addition, after establishing warehouse and logistics base,
Huabo Pharmaceutical Group will need talented people who are skilled in logistics management
to efficiently distribute its medicines, and the Group also needs modern logistics technicians to
be responsible for the strategic drug warehouse management. However, the human resource
function is not ready to support all these. Obviously, the lack of these talents will hinder the
sustainable development of Huabo Pharmaceutical Group.
Second, in aspect of the human resources utilization situation of Huabo Group, the Group
is not able to make use of the existing human resources. Although the employees’ quality of
Huabo Group is high and the Group has abundant human capital and resources generally,
currently, its strategy does not integrate with its employees’ personal development planning
very well. And mismatches between human resources and enterprise strategy have affected the
Group's operating efficiency. Therefore, Huabo Group needs to integrate its strategic vision,
corporate culture and values into its career development planning as well as develop its
employees’ various skills trainings.
Third, the newly employed talents do not adapt into Huabo Group very well. This is also
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
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a problem worthy of attention. General Manager, Executive 1, said that,
"Although Huabo has adopted the talent introduction system, the recruited talents cannot
get accustomed to their work in Huabo.”
“On one hand, this reduces work efficiency of the management team after the introduction
of talents from outside, and the overall efficiency level of current management team becomes
lower than before. On the other hand, the psychological characteristics and personal networks
of the introduced talents do not match with Huabo.”
5.1.2.1 Human resources planning
Through interviews with senior executives of Huabo Group, this study concludes that in
terms of job responsibilities, most positions in Huabo Group have clear job descriptions.
According to the head of the Purchasing Department, this study finds out that the human
resources department in Huabo Group interacts with other departments mainly on the
formulation and implementation of staff recruitment and performance appraisal. And the human
resources department does not participate in the formulation of enterprise strategies and nor
does it get involved in other department decision-making process. Through interview with
human resource and administrative director, this study finds out that currently there is not
enough professional staff in the human resources department. Although employees have at least
associate degree, very few staff graduated from the human resources major. In addition, the
daily work of human resource department focuses only routine tasks such as payroll
computation and data statistics. These tasks occupy most of the time making and the human
resources department lack time to focus on more value-added and strategic activities.
Executive 2, the HR and administration director, said,
“Huabo Group is aware of the importance of human resources, but it has not yet begun
a comprehensive reform of its human resources management system.”
Through one-on-one interview with Manager 1, vice manager of sales department for
hospital, this study finds out that currently Huabo Group mainly implements employee
recruitment based on the personnel plan formulated by the Group leader while taking employees
turnover in previous years into consideration. However, the demand for employees is reported
only by the business departments, and human resources demand is not able to predict. Moreover,
the Group does not identity human resources supply conditions through market research;
therefore, the human resources supply condition in external markets has not been taken into
consideration when the Group introduces talents from the industry.
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5.1.2.2 Staff recruitment and selection
Admission interview is one assessment method widely used by enterprises in employee
recruitment. Both one-on-one interviews and focus group sessions reveal that Huabo Group has
clear job descriptions in its staff recruitment, and employment interview is widely used.
However, the current interview process is not professionally organized and conducted.
Staff 5, a staff from procurement department, said,
“When I was interviewed, the questions asked by interviewers were not structured and the
interviewers’ attitudes were not so serious. Besides, candidates experienced very different
length of interview time.”
In addition, Manager 8, member of Board of Ssupervisors, said that in order to reduce the
recruitment cost, the recruitment preparation was relatively simple and interviewers did not
receive systematic training. She believed that the lack of investment in recruitment has led to
insufficient recruitment and promotion preparation, thus large-scale recruitment and promotion
were hardly to be realized.
5.1.2.3 Staff training and development
Middle level managers and seven frontline employees (55% of the total interviewees)
generally believe that there are two problems in current employee training system of Huabo
Group. First, the average training time for staff is insufficient. Second, there is insufficient
training on developing employees’ competency and potentiality.
Human resources specialist, Staff 1, said,
“Most of the staff training programs conducted by Huabo Group are universally
applicable programs. The Group currently does not have specialized training for employees for
each specific position and task”.
Manager 2, head of the procurement department, pointed out that the lack of tailored-made
training programs for core talents led to brain drain. Especially for superior leaders, the Group
currently does not have training program on leadership development.
Executive 4, deputy general manager, believed that the current training programs of Huabo
Group are diversified and extensive such as employee training for new employees, new business
training and so forth. In addition, Huabo Group signed the “College-enterprise Cooperation
Agreement” with Chongqing Pharmaceutical College on September 29, 2016, and jointly
established “Huabo College”. This college will help to systematically train Huabo Group’s
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procurement and sales team to improve their professional strengths and marketing ability.
5.1.2.4 Performance appraisal
Executive 6, secretary of the board, pointed out that Huabo Group had some problems in
its current performance appraisal system, and the application of performance appraisal results
need to be enhanced.
According to Manager 3, a financial manager, performance appraisal results are mainly
referenced when the company pays its employees. However, when it comes to employee
promotion and staff training, the performance evaluation results are not considered in most
cases.
The frontline staff representatives identify a problem that employees cannot get
performance appraisal results through various ways. They did not know how exactly their
performances were evaluated (the process). They could only know the results of the
performance evaluation through a system or speculate the results by their salary. Therefore,
Huabo Group needs to strengthen the communication on performance assessment results
between employees and help them to be familiar with the evaluation methods as well as
standards.
Some mid-level managers (including Directors of Purchasing Department and Distribution
Department) pointed out that the performance appraisal needs to be improved. In the current
performance appraisal adopted by Huabo Group, salary is related to performance tightly, but it
is not closely linked with post responsibility which results in measuring some managers' work
results become difficult. If such performance appraisal results cannot fully represent their work
achievements, their work enthusiasm is reduced. Moreover, short-term performance assessment
is the main work in current performance appraisal program. Long-term career planning for
employees was not included in it.
5.1.2.5 Remuneration
The total salary of a Huabo employee is mainly constructed by four parts: basic salary,
performance, bonuses and benefits. In recent years, the salary of Huabo employees has steadily
increased, but the salary offered by Huabo Group is not competitive enough to attract talents
compared with salary offered by its competitors.
Executive 2, the HR and administration director pointed out:
"The current salary distribution has failed to match with the strategy goals in the
transformation period of Huabo Group"
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82
She also said that:
“Advanced talents are the key factor contributing to the company's development, but the
company currently does not have the agreed compensation for high-quality talent. The lack of
market-based salary makes it difficult to attract outstanding talents in the industry”.
In terms of corporate welfare, 85% of the interviewees believe that Huabo Group's current
welfare system uses material rewards to motivate employees to work effectively. And the Group
has no spiritual motivation, which is not helpful for the company and employees to maintain
long-term cooperative relationship.
5.1.2.6 Staff promotion
On promotion, 70% of respondents believe that although the results of performance
appraisal to a certain extent can affect employees’ promotion, generally speaking, leader's
personal opinion is the most important factor determining employees’ promotion in Huabo
Group.
Staff 9, the invoice clerk, said that Huabo Group did not provide training and guidance for
employees' career planning. According to her words, since she entered the company, she rarely
got advice on career planning. On one hand, career planning can provide guidance for
employees' development in the company. On the other hand, it promotes the employees'
contribution to the future development of the company. Well-designed career planning can be
helpful to help the Group achieve the alignment between employee behavior and the enterprise
development strategy. It also plays an important role in human resource management. Currently,
lack of career planning is detrimental to the long-term development of Huabo Group's
employees. Summary of interview results is shown in Table 5-1:
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Table 5-1 Summary of Interview Results
Human Resource Management Interview Results
Human Resources Planning
Talents are introduced without standardized interview; the HR
department does not make prediction on labor demand from the
perspective of enterprise strategy.
Recruitment, Selection and
Placement
The investment in recruitment is not enough resulting in
insufficient recruitment advising; The Group has a clear
description of the job and it also interviews the employee in
recruitment, but the interview is not professional.
Training and Development
The staff training programs in the Group is universally
applicable programs and the Group lacks tailored training
programs for its key talents
Performance Appraising
Performance appraisal is kind of short-term assessment; there is
no long-term career planning for employees. Performance
appraisal results are mainly used to determinate employees’
salary and they are seldom used in employee promotion and
training. Employees are not informed with performance
appraisal processes. The evaluation results cannot reflect
employees’ whole work achievements.
Compensation
Limited to traditional material incentives and spiritual
motivations are in need; compensation distribution fails to
reflect the strategic goals and objectives of Huabo Group in its
transition period; the compensation system is difficult to attract
talents in the industry.
Staff Promotion
Promotion of employees is mainly based on the personal
opinion of the leaders;
the training and guidance on employees’ career planning is
inadequate
Others
(1) Huabo Group is short of professional technicians
(2) Huabo Group is unable to realize full utilization of existing
human resources.
(3) How to make the new employed talents immerse into Huabo
Group well is also an urgent problem
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5.2 Survey results
The structured interviews and focus group sessions reveal a general understanding of the
alignment status of Huabo Group's strategy and human resource management. In order to fully
analyze the gap between human resources management and enterprise strategy of Huabo Group,
the following part presents the results from questionnaires.
5.2.1 Strategy type of pharmaceutical business in Huabo Group
Questions 6-8 ask employees to tell the general information of the strategy adopted
Huabo Group. Question 6 measures the employees' views on which stages the company is in.
Question 7 measures the employees' feelings on the company's strategy changes. Question 8
measures the employees’ knowledge on the company’s strategic characteristics.
For question 6 on which stages Huabo Group is in, 58.8% of employees said that the
Group was in its development stage while 24.5% of them thought the Group’s development
was in maturity period. Only 6.9% of employees stated that the Group was in the entrepreneurial
stage while 9.8% of them thought that the Group’s development was currently in declining
period. When it comes to the changes of enterprise strategy of Huabo Group, more than 50%
(the mean is bigger than 4 in 1-7 Likert scale) of employees believed that its strategy and
operations have changed during the past two years and the strategy as well as its operation will
also be improved significantly in the next two years.
In terms of its strategy type, 50.9% of its employees believed that the Group is an
enterprise of category C, which means Huabo Group has changed a lot in its products and
market share, suggesting prospector strategy. Besides, it is able to identify the demand in the
market timely, and the Group keeps trying to be the prospector in the market. Only 32.4% of
employees believed that Huabo Group was an enterprise of category B, the analyzer strategy;
another 16.7% of employees believed that the Group is an A-type enterprise with defender
strategy. Overall, the majority of survey respondents believe that Huabo Group is currently in
the development stage and the group is pursuing prospector strategy which is the same as the
interviews and focus group sessions reveal.
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85
Figure 5-1 Stages of the Group
Figure 5-2 Proportion of Employee-Reported Strategy of Huabo Group
5.2.2 Practices of human resource management
5.2.2.1 Recruitment
This study investigates Huabo Group’s recruitment of human resources by asking its
employees to answer some questions regarding written assessment, interviews, internal
recruitment channels as well as its job descriptions. On a 1-7 Likert scale, the mean of question
Entrepreneurial Stage; 6,90%
Development Stage; 58,80%
Mature Stage; 24,50%
Decline Stage; 9,80%
Defender; 16,70%
Analyzor; 32,40%
Prospector; 50,90%
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
86
on written examination/assessment is 3.41 and the mean of question the job interview is 6.32.
This shows that Huabo Group use both interview and written examination in recruitment and
selection process, but the written examination is not a standardized process. The mean of
question on internal recruitment channel is 5.24 while the mean of question job description is
5.41. This indicates that the Group has an internal recruitment policy and most job opening
have job descriptions.
5.2.2.2 Training and development
According to the results of the survey, the mean of questions related to staff training and
development is at least 4. In particular, the mean of the question “The Company provides
capable employees with promotion prospectus” is 5.72. However, the mean of the question
“The Company provides rich abundant training activities for employees” is 3.96. This low score
indicates that Huabo Group need to do more in provision of training activities for its employees,
a similar result of the interviews.
5.2.2.3 Performance appraisal
The mean of question on having formal performance assessment in Huabo Group is 5.67.
And the mean of question “The Company uses objective data for appraisal” is 5.68 while the
mean of question “The Company gives rewards and punishments to employees according to
their performance appraisal results” is 5.43. These results shows that the Huabo Group has
performance appraisal system in place and it is also able to uses objective data for performance
assessment, but the Group still need to enhance the use of assessment results for rewards and
punishments which align with the result from interviews.
5.2.2.4 Compensation and incentives
The mean of question “The Company implements an incentive system to encourage
employees to achieve company goals” is 4.80. And the mean of question “The Company
reasonable rewards persons contributing to the company” is 4.63. Regarding the question on
competitiveness of the compensation and welfare offered by compared with other companies
in the industry, the mean is 3.71. This shows that Huabo Group has reward mechanism for its
employees, but compared with other companies in the industry, Huabo Group’s compensation
and benefit is not attractive. A similar result was found in the interviews.
5.2.2.5 Relationship of Huabo Group and its employees
The questionnaire investigates the relationship of Huabo Group and its employees. In
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
87
general, the relationship is positive and it benefits both parties. The mean of question “The
Company takes advices from management team members before making a decision when it
settles a matter” is 4.88. And the mean of the question “The Company encourages employee
teams to try to solve problems on their own as much as possible” is 5.52. The mean of the
question “Over the past six months, the Company has adjusted some of its practices according
to employee opinions” is 4.71. Lastly the mean of the question “the Group regularly releases
its target or plan to its employees” is 5.94. These results indicate that Huabo Group has taken
its employees' opinions into consideration when solving problems and has regular
communication with employees regarding its target or plan. Another evidence of the positive
relationship between the Group and its employees is it encourages employees to develop their
independent abilities to solve the problems.
5.2.2.6 Satisfaction, organizational commitment and intention to stay in Huabo Group
The last part of questionnaire investigates the work attitude of Huabo Group’s employees
in aspects of staff satisfaction, organizational commitment and intention to stay with the
company.
The mean of the question on general satisfaction of working in Huabo group is 5.16.
However on other questions, the mean is very low, suggesting that the employees in Huabo
Group are not so satisfied. For example, the mean of question “I would like to recommend a
friend to work for Huabo” is only 4.32, and the mean of question “I prefer to stay in Huabo
Group instead of accepting a job with higher salary outside” is only 4.28. These two low means
indicate that its employees are pragmatic and only stay for money. On the one hand, the
incentive policy of Huabo Group needs to be improved, as the salary provided by Huabo Group
is not so attractive compared with employees’ payment in other companies in the industry; and
on the other hand, Huabo needs to strengthen non-monetary incentives such as corporate culture
and values in order to give its employees a sense of identity and belonging.
In terms of employee’s organizational commitment, the mean values are generally higher
than that of work satisfaction. In particular, the mean of question “I would like to work harder
to help the company succeed” is 6.72. Besides, the mean values of questions “I’m proud to
work for Huabo” and “I have a strong sense of belonging at Huabo” are 5.87 and 5.21
respectively. These results are quite positive, but the question is it is difficult to know how
serious they are.
The last three questions investigate employees’ willingness to stay in Huabo in the future
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
88
and the result reflects they are all willing to continue their work in Huabo Group. For instance,
the mean of question “I plan to continue my work at Huabo” is 5.56 while the mean of question
“I will not leave Huabo Group for at least the next 12 months” is 6.06, and 6.17 is the mean of
question “I will not consider looking for a job outside within half a year”.
Different from the questions on HR practices which can be validated with the results of
interviews and focus group sessions, the respondents’ answers for questions on their satisfaction,
organizational commitments and intention to stay, they have a lot of concerns which prevent
them from giving their true feelings. As a result, the results of above parts present quite a
conflicting picture. For example, on the one hand, they are satisfied, committed to the
organization and would like to stay. However, when asked whether they want to introduce the
Group to their friends or to reject jobs with higher salary, they are more negative. Therefore,
the data need to be interpreted with caution and holistic approach.
5.3 Factors hinder the alignment of enterprise strategy and human resources
management of Huabo Group
Huabo Group is determined to be a military-civilian integration development enterprise
which provides integrated distribution services on medical equipment and medical war material
for logistics organizations of the Chinese People's Liberation c, the Chinese People's Armed
Police Force and some local Armed Forces. The strategic goal of the Group is to enhance its
core competitive advantages of its primary operations as well as to promote its business
integration and business model innovation, so as to improve its competitive advantages in the
industry and achieve its brand effect. Through interview, focus group sessions and questionnaire,
this study explores and examine its strategic transformation, its current strategy type and its
human resource management and the alignment of its HRM and strategy.
5.3.1 Strategic orientation of Huabo Group
Faced with the dynamic, complex and hostile environment driven by medical and health
system reform, technology (e.g., pharmaceutical e-commerce)and intense competititon, Huabo
Group begins to transform itself to be a military-civilian integrated modern pharmaceutical
enterprise, and it will also gradually develop into an integrated supplier of pharmaceutical
products. Survey result reveals that 50% of its employees believe that the Group adopts
prospector strategy, and 50.9% of its employees believe Huabo Group has changed a lot in its
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
89
products and market share. And according these employees’ opinion, the Group is able to
identify the demand in the market timely, and it keeps trying to be the prospector in the market.
In addition, in its daily operations, Huabo Group also makes effort to increase its market share
through product development and market expansion. While it focuses on developing a large
number of new products, market-oriented products design is also emphasized. And the Group
also vigorously expanded the market of hospital drug supply. For example, it cooperates with
more than 20 hospitals in Chongqing in drug supply while actively integrates its retail pharmacy
resources to make the company bigger and stronger. Therefore, Huabo Group adopts prospector
strategy. This empirical result is consistent with the conclusion of Tan (2002) who argues that
prospector strategy is more suitable for Chinese private enterprises. Using the strategy category
proposed by Miles and Snow (1978), Tan (2002) examines the corporate strategies of China's
state-owned enterprises, private enterprises, enterprise of collective ownership and Sino-foreign
joint-venture. He finds that Chinese private companies tend to adopt prospector strategy and
this strategy can help Chinese private companies deal with the uncertainty of external
environment and main their competitive advantage.
5.3.2 Role of human resources in Huabo Group
This study indicates that Huabo Group's human resources are rarely involved in the
formulation of its strategy. Through investigating the relationship between employees and the
Group, this study also finds out some managers’ suggestions and advice cannot be heard by the
Group when it deals with its problems. And some of employees' opinions are ignored when
some enterprise’s policies are adjusted. Through interview, this study points out that although
the Group has noticed the importance of human resources, it does not start to reform and invest
in its human resources management system. This is not helpful to its development, because
when faced with the reform of pharmaceutical industry system as well as fierce market
competition, Huabo Group's human resources should help it to complete its transformation and
make it adapt to the new competitive environment. Therefore, this study concludes that Huabo
Group should be strengthen the roles of strategic partners and change agents in its human
resource department David (Ulrich, 1998).
5.3.3 The alignment of strategy and human resources management of Huabo Group
Following the discussion of the current strategic orientation of Huabo Group, this section
discusses how its human resources management aligns with its strategy typology as a prospector.
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
90
Based on the alignment framework of strategy and human resource management put
forward by Miles and Snow, when the company adopts prospector strategy, it needs to
continuously develop new products and expand the market. Meanwhile, it also adopts
decentralized management within the organization. Through the analysis on results of
interviews and questionnaire surveys, this study found that although Huabo Group is aware of
the importance of human resources, its human resources management has not been reformed,
therefore, human resources management has not risen to a strategic position. To some extent,
service quality determines the survival and development of pharmaceutical logistics companies,
and the human resources as well as human resources management skill determines enterprises’
service quality directly. From the perspective of the overall development trend of the
pharmaceutical logistics industry, industry concentration is inevitable and the demand on
pharmaceutical logistics companies has also increased Faced with the ever-changing external
environment and fierce market competition, Huabo Group should realize the importance of
human resources in practice and give new roles, strategic partners, to human resources, and it
should also align human resources management with prospector strategy to ensure the
implementation of the strategy.
In terms of human resources planning, Miles and Snow (1984) suggest that under the
prospector strategy, the human resource planning is “limited” and “informal”, which is
understandable given the continuous need to develop new market and new products and
constant changes in the external environment. And when human resources department allocates
talents, it should take enterprise strategy into consideration. However, in Huabo Group, the
current situation is the human resources department interacts with other departments mainly on
the formulation and implementation of staff recruitment and performance appraisal. And the
human resources department does not participate in the formulation of enterprise strategies and
nor does it get involved in other department decision-making process. Moreover, the Group
does not identity human resources supply conditions through market research, therefore, when
it introduces talents, the human resources supply condition in external markets is not referred.
To some extent, Huabo human resource planning is limited and it is partly because the human
resource department does not play the strategic role as a strategic partner and change agent, and
partly because the department does not have the infrastructure and capability to do strategic
staff planning.
In terms of human resources recruitment & selection, acquiring human resources is the
basic strategy for organization pursuing prospector strategy with emphasis “buying” talents
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
91
outside the organization (Miles and Snow, 1984). The interviews and survey suggest that Huabo
Group did endeavor to attract and introduce talents from outside despite the company has an
internal recruitment policy. However, the talents recruited from outside have difficulty in
adapting to the working environment in Huabo and in fact hinder the efficiency of the
management team, becoming a liability rather than an asset. The interviews reveal evidence
that human resources department might not have the professional capability and expertise to
identify and recruit the right talents for the company. For example, an interviewee said that the
interviewers were not professional in terms of interview questions and interview approach.
The implementation of prospector strategy in Huabo needs effort of a large number of
professionals with diverse disciplines. The current employees in Huabo Group has undergone
market competition and more than 80% of them have at least college degrees. Therefore, in
general the Group has the basic human resources needed for implementing prospector strategy.
Academic backgrounds of current employees of Huabo Group cover not only pharmacy,
logistics management and information management which are required for business
development but also business administration, trade economy, finance & accounting, and
marketing which are related to enterprise operation. However, with the restructuring and
optimizing of Pharmaceutical business of Huabo Group, its current human resources structure
is unable to serve its future business development very well.
For example, the Group still need more technical talented person to promote its future
development in Pharmaceutical business. Second, it needs to improve its skill in employ
recruitment and selection. The sustainable development of its pharmaceutical business needs
support of talents from fields of pharmaceutical, logistics, and business management. However,
the Group still lacks talents with these professional backgrounds currently. As the Group
increases its cooperation with medical institutions and tries to improve the quality of its retail
pharmacy services, the Group’s demand on pharmacy talents has been increased; especially
demand on those experienced pharmacists. In addition, after establishing warehouse and
logistics base, Huabo Pharmaceutical Group will need talented people who are skilled in
logistics management to efficiently distribute its medicines, and the Group also needs modern
logistics technicians to be responsible for the strategic drug warehouse management. Obviously,
the lack of these talents will hinder the sustainable development of Huabo Pharmaceutical
Group.
Thus, acquiring human resource from the market will be an important and long-term
strategy for Huabo’s success as a prospector.
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
92
At present, the Group focuses more on internal recruitment; however, external recruitment
is the key method of introducing talents. Therefore, the Group should pay attention to
emphasize on external recruiting. Therefore, getting the recruitment, selection and replacement
right are fundamental in human resource management of Huabo Group. But Huabo invest
limited resources in recruitment advising and employee compensation and benefits. Besides,
most of the interviewees pointed out that although Huabo Group have interview for employees
but the interview was not professional. And the questions asked by interviewers are random
questions because they do not receive systematic training. Sometimes there is no written
examination, and sometimes there is a lack of standardized instruction in written examinations.
These circumstances are not helpful for Huabo Group to introduce high-quality talents and
create a talent team with competitive advantages. In view of the above problems existed in
recruitment process, Huabo Group need to improve its employee attraction, recruitment and
selection by increasing investment to attract talents and strengthen its human resource
professionals to improve recruitment effectiveness.
In terms of training and development, Schuler (1989) contend that companies adopting
innovation strategy (similar to prospector strategy) should increase employee promotion
ladders and provide them with promotion opportunities as many as possible. Huabo Group
needs to increase investment to improve its staff training system. At the same time, the Group
should focus on internal talent development and strengthen team building of its employees.
The study finds out that Huabo employees are very much in favor of the group's training
and development. In order to enrich the employees' knowledge and improve their professional
skills, Huabo Group has developed orientation training program and dispatched employees to
the university regularly to attend MBA courses. It also sent employees to some other companies
for exchange learning. In addition, the Group often holds skills competitions to motivate
employees to increase their work enthusiasm and knowledge. These practices lay a good
foundation for the long-term development of the Group.
The prospector strategy requires employees to constantly upgrade their technology and
possess specialty. Therefore, this corporate strategy needs to be aligned with advanced staff
training system. From the results of the questionnaire survey, this study gets that Huabo Group
provides employees with training channels and promotion space. However, the Group has not
yet tailored training programs for core talents. This shows that the development and training of
staff skills needs to be strengthened, and the Group should increase its human resources
investment in the future development.
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
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In addition, from the results of interviews and questionnaires, this study points out that
Huabo Group has single promotion ladder, and the promotion depends mainly on leadership
personal opinion and judgement. Schuler (1989) believes that the diversifying promotion
ladders is a kind of human resource management practice that help Huabo Group's human
resource management fit in its corporate strategy. Therefore, Huabo Group needs to increase its
employees' promotion ladders, give employees more development opportunities, and change
the employee promotion methods from based on leadership preferences to be based on their
merits and performances.
Lastly, Huabo Group need to integrate with its employees’ career development planning
with its development. Therefore, the human resource department needs to provide career
development services and advices for its employees and make career development part of the
performance management and training programs to better align employee’s personal
development with organizational development.
In terms of performance appraisal, scholars believe that companies adopting prospector
and innovation strategies focus on long-term goals as well as group-based performance
appraisal results (Miles and Snow, 1984; Schuler, 1989).
Performance appraisal methods in Huabo Group do not fit in requirements of its enterprise
strategy. In particular, Huabo Group pays more attention to short-term assessment and lacks
long-term career planning. In human resources management, Huabo Group has a clear job
description which is not necessarily required by prospector strategy. In term of performance
management, Huabo Group currently does not provide employees with timely communication
and feedback opportunities. This resulted in a lack of effective communication between the
Group and its employees. At the same time, the performance evaluation results could not help
the managers to make decisions in the first place. Therefore, managers cannot find loopholes in
management through feedback from employees. Performance management systems do not
realize its function in the company's human resources system. In addition, human resources
management practices such as compensation, training, rewards, punishments, and promotions
are not based on the results of performance evaluation.
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
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Table 5-2 The Alignment Situation of Enterprise Strategy and Human Resources Management of
Huabo Group
Strategy Prospector Strategy
(Miles&Snow, 1984)
Innovation Strategy
(Schuler, 1989)
Huabo Group’s Strategy
&
Human Resources
Alignme
nt or not
Human
Resources
Planning
informal, limited and
ambiguous job
descriptions;;
acquiring human
resources
employees being
given high
flexibility; intensive
employee
involvement in
human resources
planning
Limited;
Acquire/Introduce talents
from outside
align to
some
extent
Recruitment,
Selection and
Placement
Emphasis: "buy"
Sophisticated
recruiting at
all levels
Selection may involve
pre-employment
psychological
testing
focus on external
recruitment; select
high-skilled
employees and
require close
interaction and
coordination among
groups of
individuals
Unprofessional interview
and simple selection
method. Insufficient
investment to “buy”
Not
Training and
Development
Skill identification
and
acquisition
Limited training
programs
Focus on human
capital investment;
broad promotion
ladders to promote
technical
development
Universally applicable
staff training programs;
lacks tailored training
programs for key talents;
single promotion ladder;
promotion based mainly
on leadership preference.
Not
Performance
Appraisal
Results-oriented
procedure(for
example, management
by objectives or profit
targets); Identification
of staff needs;
Division/corporate
performance
evaluations; Cross-
sectional comparison
(for example, other
companies during
same period)
Performance
appraisals that are
more likely to reflect
longer-term and
group-based
achievements
Focus on short-term
performance appraisal;
short of Long-term career
planning for employees.
Not
Compensation
Oriented toward
performance
External
competitiveness
Total compensation
heavily
oriented toward
incentives
and driven by
recruitment
needs
Allow employees to
be stockholders and
have more freedom
to choose the mix of
components (salary,
bonus, and stock
options) that make
up their pay package
Compensation not
competitive externally Not
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
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In terms of compensation incentives, Miles and Snow (1984) emphasizes that prospector
needs to increase variable pay instead of basic salary. This is because there are no clear job
descriptions and the employees’ work is difficult to measure by the human resources department
of the company adopted prospector strategy. Miles and Snow (1984) argue that companies
adopting prospector strategy should emphasize external competitiveness over internal fairness
or equality. In other words, Huabo Group need to offer competitive compensation in the
industry which is not the case. Through interviews and surveys, this study finds out that
employees are not satisfied with the company's current salary levels and incentives. Compared
with companies in the same industry, HuaBo’s salary has no advantage and its salary is not
helpful to attract talents.
5.4 Causes for alignment issues of strategy and human resources
management in Huabo Group
5.4.1 Human resources planning
To make a reasonable human resources planning, the enterprise needs to consider its
strategic objectives. That is, when conduct human resources planning; the enterprise should
first analyze the current situation of its current human resource management. Then according
to external environment changes, it predicts the supply and demand situation of employees, in
the next step, it formulates human resources policies to implement employee recruitment, staff
training, promotion and so forth. Ultimately, it will realize talents selection and replacement
and achieve its strategic goals. Although Huabo Group has built its human resource practices
in key function from recruitment to training/development and performance appraisal, there is
limited human resource planning, which seems to align with the prospector strategy. Limited
human resource planning may be reason for a prospector as the company faces constant change
environment and focuses on new market and new product which make planning difficult.
However, for Huabo Group, the limited human resources planning is more because of lack of
strategic role of its human resource department as strategic partner and change agent. More
importantly, the human resource department is not sufficiently developed in terms of resources
and capability to play the strategic role.
5.4.2 Recruitment and selection
As mentioned above, the main responsibility of Huabo Group's human resources
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
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department is daily human resources management, and the human resources department has not
participated in the formulation of its strategy. As for Huabo Group’s current recruitment system,
there was no official documents describing the recruitment requirements, and the recruitment
process was not formal and professional neither. Such informal and unprofessional recruitment
and selection are not able to attract and select the right talent that the company really needs. At
present, Huabo Group does not establish a scientific and reasonable talent training mechanism
and it cannot select and replace its talents according to its own needs. The employees can hardly
achieve their long-term development in such conditions and the Group’s long-term strategic
goals are also difficult to realize. At present, during the transition period, the problem in Huabo
Group’s human resources management is the shortage of talents. Therefore, in recent years,
Huabo Group has paid more attention to attracting talents such as introduce retired employees
from excellent companies and attract more high-quality employees through improving salary
and benefits. However, the Group has not started to train its employees to accept its corporate
culture and to integrate employees’ development with the company's development. Due to the
current imperfect human resources management system, the Group’s investment is wasted to
some extent; besides, the creativeness and enthusiasm of the introduced talents are also
damaged resulting in serious brain drain.
5.4.3 Training and development
Through training, employees can be more familiar with corporate culture and position
responsibilities. At the same time, the training will be helpful for them to understand the
company's development goals. At present, the staff training program of Huabo Group is simple
and extensive. There are no tailored training programs for its key talents, and the training does
not take the employees’ needs into consideration which makes it unhelpful to employees’
professional development. The employee promotion mechanism refers to the process how
employees move from lower-level positions to higher-level positions. A reasonable employee
promotion mechanism can allocate resources effectively and provide good opportunity for
employees to realize career development. Through interviews and surveys, this study finds out
that the current promotion of employees in Huabo Group depends mainly on managers’
preference. And the promotion ladders are not diversified while the promotion standards are
unclear. These promotion problems will reduce employees’ working enthusiasm. If these
problems continue exist, some employees will leave the company. Therefore, only by
diversifying employee promotion ladders and clarifying that the promotion standards,
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
97
employees’ working enthusiasm can be motivated and the Group’s human capital can contribute
to its development.
5.4.4 Performance appraisal
Huabo Group's performance appraisal process is too short to truly reflect the relationship
between employee behavior and corporate strategy. In addition, some performance evaluation
indicators are too extensive; therefore, the implementation of performance appraisal system has
been affected. And unclear performance evaluation standards also reduce employees’ working
enthusiasm. Besides, the performance appraisal system in Huabo Group focuses more on the
evaluation process rather than the application of the appraisal results. Such performance
appraisal system cannot be referred in employees’ promotion. So the fundamental purpose of
performance appraisal does not achieved.
5.4.5 The unattractive salary
First, only by offering high-level physical incentives can the Group continue to increase
its employees’ working enthusiasm. Compared with other companies in the industry, the current
salary provided by Huabo does not have advantages; this salary level is not good for the Group
to introduce outstanding talents. Second, with economic and society development, most
employees in enterprises are no longer satisfied with low-level needs (physiological and
security needs). However, the Group's physical incentives can only meet the basic needs of its
employees. Therefore, in addition physical incentive, spiritual incentive is of particularly
importance because many managers move towards to high social status and they also want to
realize self-fulfillment. Spiritual incentive is helpful to motivate employees to work harder by
increasing their working enthusiasm and self-esteem. Third, Schuler (1994) believes that the
compensation system with internal fair fit in prospector strategy very well. Compared with other
companies in the industry, the fair performance appraisal system is the source of employees’
sense of fairness in Huabo Group. Therefore, Huabo Group needs to establish a standard
incentive mechanism and focuses on flexible compensation.
5.5 Summary
Through interviews and questionnaires, this chapter analyzed alignment of enterprise
strategy and human resources management in Huabo Group by depicting current alignment
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
98
situation, identifying existing problems as well as causes. Through analyzing the data collected
by questioning Huabo Group's employees on aspects of recruitment, training, remuneration,
performance appraisal, relationship between cooperate and employees and so forth, this chapter
draw a conclusion that Huabo Group adopted prospector strategy in its pharmaceutical business,
and the nonalignment of its human resources management and its strategy is shown in the
following aspects: (1) limited human resources planning due to absence of strategic roles of HR
department. (2) In aspect of recruitment and selection, there is insufficient resources and
professional skills to get the right talents on board. (3) In terms of staff training and developing,
tailored training programs for core talents and career planning of employees do not exist.
Employees’ needs are ignored which is not helpful to their long-term development in the Group;
(4) when it comes to performance appraisal, the assessment is simple and its period is short.
And the evaluation focuses more on its process rather than the application of assessment results
as well as the corresponding opinions of employees on performance assessment. (5) In terms
of remuneration, Huabo emphasizes only on physical incentives and the compensation is not
attractive.
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Chapter 6: Discussion
External environment of the medical distribution industry has three characters: dynamism,
complexity, and hostility. This makes the external industry environment full of uncertainty. In
2016, the China State Council issued the 2016 List of major tasks in furtherance of the
healthcare and pharmaceutical reforms, requiring pilot provinces for comprehensive health
care reforms to promote the “Two-Invoice System” provincially and actively encouraging pilot
cities for comprehensive public hospital reforms to promote the system, so as to optimize drug
purchasing and selling orders, reduce distribution channels and support medical service price
reforms. Thus, business concentration will be further improved. With the industry policies of
narrowing down the payment coverage of Medicare Fund as well as reducing the budget of
Medicare Fund, the growth of the pharmaceutical industry has slowed down, and the
pharmaceutical industry has also gradually shifted its development mode from quantitative
growth to qualitative growth. In such external environment, Huabo has chosen prospector
strategy. This chapter will first discuss the rationales for a prospector strategy and then the
alignment of human resources management and prospector strategy in Huabo Group. Some
suggestions of improving such alignment are also put forward according to the research results
of this study.
6.1 Industry environment and strategic orientation
Good supply practice (GSP) has put forward a series of requirements which improve the
entry standard of pharmaceutical distribution industry. These requirements ask the medical
distribution corporations to establish computer-based information management systems, set
required temperature and humidity in their pharmaceutical warehouse as well as strengthen
invoices management. Besides, GSP also points out that related institutions should strictly
control and supervise drug sales and transportation. The health care reform and its supporting
measures have intensified the market competition, and the profit space of the pharmaceutical
industry will be further reduced. On the other hand, the operational cost of retail companies in
the pharmaceutical industry has increased. The policies such as narrowing down the payment
coverage of Medicare Fund and requires hospitals to sell drugs at purchasing price (the price
that hospitals get the drugs) have reduced the retail pharmacy market space and profit space.
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
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This finally reduces the growth of total pharmaceutical retail sales. Thus it can be seen that the
external environment of the medical distribution industry faced by Huabo Group has three
characters: dynamism, complexity, and hostility. Under such dynamic and changeable external
environment, Huabo Group adopts prospector strategy.
Huabo Group is designed to be a military-civilian integration development enterprise
which provides integrated distribution services on medical equipment and medical war material
for logistics organizations of the Chinese People's Liberation Army, the Chinese People's
Armed Police Force and some local Armed Forces. Meanwhile, Huabo Group is changing from
a traditional medical distribution corporation to a corporation focusing on pharmaceutical
research, development and sales. In order to improve its competitive advantages in the industry
and achieve its brand effect, the Group also starts to enhance its core competitive advantages
of its primary operations, promote business integration and business structure innovation.
Under a background that China is currently deepening the reform of medical and health system
meanwhile the central government encourages merger and acquisition of pharmaceutical
distribution companies to accelerate the internal integration within pharmaceutical industry,
Huabao decides to adopt prospector strategy. This strategic orientation is in line with the
strategy category proposed by Miles and Snow (1978). Beside, Tan (2002) has conducted an
empirical study on Chinese private enterprises in which he concludes that the prospector
strategy is a strategy suitable for Chinese private enterprises. Therefore, strategic orientation of
Huabo Group is right.
However, this study finds out that employees in Huabo Group, especially those basic
employees, are not familiar with its strategic orientation. This is a problem faced by many
Chinese companies. To solve this problem, Huabo Group will make effort to communicate its
strategy to all its employees so that they can understand Huabo Group's strategic goals as well
as the action plans to realize these goals. After they know the Group’s strategy very well and
accept it in their deep heart, they will unconsciously help the Group to realize strategic goals
with their efforts. In addition, the senior management team of Huabo Group should identity the
implementation goals and plans of its prospector strategy, and supervises all departments to
implement its strategy together. In particular, the senior management team of the Group must
make sure that the Group’s human resources management is aligned with its prospector strategy.
This will be helpful to transfer its human resources to be the Group’s core competitiveness.
Therefore, Huabo Group needs to treat the human resources department as strategic partner
and have this department participate in the formulating and implementing of thestrategy. The
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
103
Group should also have independent human resources department offering specialized and
professional services for the company and the employees. However, human resources
management of the human resources department in Huabo Group falls behind its business
development. Huabo senior management team should be knowledgeable and capable to manage
its human resources to support its strategy and business development. Currently, most senior
executives in Huabo Group are competent in managing its human resource and are supportive
of increasing investment in human resources management. How, a few members in charge of
logistics and finance lack professional knowledge on human resources management. They do
not understand well the importance of human resources management and they seldom
participate in human resources management. Therefore, the Group needs to enhance effective
communication among senior executives to help leaders in logistics department and finance
department understand the relationship between human resources and corporate strategy.
Besides, such communication will also help senior executives in other departments understand
the operation situation of Huabo Group’s logistics and financial department.
6.2 Alignment of strategy and human resources management in Huabo
Group
6.2.1 Human resources planning: analysis of the supply and demand of human resources
to attract right talents
Human resources planning is an important part of a company’s development strategy, and
it is also the basis of human resources management practices. In terms of human resources
planning, based on corporate strategy and development goals, Huabo Group should correctly
predict and analyze the supply & demand of human resources to support its market development
and product development, guided by the prospector strategy. Such prediction and analysis must
be also tailored to meet requirements of its corporate strategy. And it enables Huabo Group
formulate its best human resources management system in an ever-changing market
environment.
For Huabo Group, the first step of human resources planning is information collection and
analysis. The information collected of Huabo Group should mainly include: (1) Company
information such as information of the Group’s business strategy, strategic goals, organization
structure, development status, as well as the information of its equipped facilities. (2) Human
resources management information such as overall human resources, staffing and placement in
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
104
each department, and staff competencies. (3) Information of external environment such as labor
market, national policies, and local economic development. After collecting all the above
information, Huabo Group should analyze the supply and demand of human resources, and
conduct demand forecasting on human resources. In particular, the Group needs to forecast the
number of human resources needed by the Group as well as to forecast the human resources
turnover in its future development. In addition, the Group also needs to conduct supply
forecasting on human resources. In particular, this means the Group needs to forecast the
number and the quality of employees that are available to Huabo Group in a certain period. This
kind of forecast considers the supply of human resources both within and outside the company.
According to the results of demand and supply forecasting of human resources, combined with
its current human resources, Huabo Group finds out the total number of needed employees and
in the next step it decides whether it should implement human resources management such as
recruitment and staff training or not.
6.2.2 Recruitment and selection: strengthening talent introduction mechanism and
improving core competitiveness in the Group
According to Miles and Snow (1984), acquiring human resource outside the organization
is the fundamental of prospector strategy. Recruitment and selection are important ways for
prospector firm like Huabo to attract and introduce talents. Therefore, Huabo Group should
attach great importance to its employee recruitment, carefully analyze the recruitment process,
be responsible for the whole recruitment process, and make sure that the recruited employees
meet the need of business development in Huabo Group. At present, in terms of recruitment
and selection in Huabo Group, the investment on recruitment and advising should be increased
while the problem of unprofessional interviewers needs to be solved. Reasonably increasing
human resources management investment in corporations can promote the alignment of strategy
and recruitment and selection of human resources management. The long-term corporate
strategy needs to be matched with a long-term human resources selection strategy. And the long-
term strategic designation needs to be supported by a long-term investment. Therefore, Huabo
Group needs to constantly adjust its investment on human resources according to its competitive
strategy, so that human resources can contribute to the realization of its corporate strategy. The
increased investment in recruitment includes capital investment and human capital investment.
Cost resulting from recruitment mainly includes recruitment-related cost and labor cost. The
recruitment-related cost mainly includes cost of recruitment websites maintenance, job opening
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
105
advising and fees of holding job interviews. The labor cost refers to the salary and benefits paid
to the recruiter. Huabo Group should increase investment and recruit talents by multiple
channels. Only in this way can companies have more choices when recruiting talents. Besides,
it will be also more easily for corporations to recruit suitable employees.
For human capital investment, the corporation needs to take the comprehensive ability of
interviewee into consideration; generally speaking, there are usually two recruitment forms:
written examination and interview. The Group should develop different assessment criteria for
recruitment forms. At present, Huabo Group has no standardized written examination in staff
recruiting; therefore, the written examination can be included in its recruitment process to help
the Group understand the professional qualities and personality characteristics of the candidates.
In terms of interview that examines the comprehensive capabilities of the candidates, Huabo
Group needs to give its interviewers special training to increase their ability of identifying
excellent candidates.
In addition to increase human capital investment inside the organization, Huabo Group
should also reasonably utilize social capital and external human capital through various ways
to leverage human resources outside the organization. With the development of “Internet+”,
social capital has played an increasingly important role in enhancing corporations’
competitiveness. Huabo Group currently is able to seize the opportunity of joining the New
OTC (Over the Counter) Market to obtain assistance from the capital market and seek
development in the following areas:
1) through cooperation with large-scale Central Enterprises, Huabo Group actively
participates in reform, expansion and investment of transforming Secondary hospitals
of Grade A to Tertiary hospitals of Grade A;
2) participate in the mixed ownership reform of transferring the military hospital to local
hospital;
3) participate in the mixed ownership reform of affiliated hospitals of state-owned
enterprises and government institutions;
4) extend business domains in local market; through negotiating with local governments
and adopting an investment-for-market-share strategy, Huabo Group obtains large
procurement share in supplying local public health institutions with drugs,
consumables, and medical equipment through introducing investment for local
government;
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
106
5) establish a pharmaceutical logistics center; the military medical institution has
successfully got land to build a comprehensive modern pharmaceutical logistics center
at the Chongqing Highway Logistics Base in Banan District of Chongqing City. The
medical logistics center covers an area of 50 acres and the warehouse area is
approximately 40,000 square meters. When it is completed, it will directly become the
strategic reserve center for the People's Liberation Army and the Armed Police Force
with annual volume of trade amounting to 200 million yuan. Therefore, Huabo Group
needs to increase its social capital investment and adopts Partners Program to innovate
the talent introduction mechanism.
The other strategy is the Partnership Program. A partner is a natural person, legal person
or other organization that meet the requirements of being a partner. The requirements are: 1)
Pharmaceutical natural persons, teams, or pharmaceutical commercial corporations that
independently control at least one resource factor; 2) Willing to integrate their products, sales
network, and management teams into Huabo Group; 3) Voluntarily use its own social resources
to assist Huabo Group to achieve greater development and ultimately achieve mutual win; 4)
Willing to accept asset and market assessments by a third-party auditing agencies; 5) meet the
standards of being qualified investors and voluntarily invest in Huabo Group.
The Partnership Program means that a limited liability company or a limited partnership
is jointly funded by the actual controllers of Huabo Group and its partners. These two parts will
invest in the shareholding platform according to their subscription proportions. After each
partner agreed the agreement of consortium offer signed by the shareholding platform and
Huabao Group, these partners and Huabo Group become Consortium Offer. After the
shareholding platform has subscribed shares of Huambo Group, the partners join Huabo Group
and bring their current business operations into Huabo Group. After the business integration,
the two parties adopt different operation methods and income distribution methods according
to their business types (there are two business types after integration, the original business refers
to the business of the partners before they are incorporated into Huambo Group; the additional
business refers to the new expanded business after the partners joins in Huabo Group). After
the business integration, the original business and the customer maintenance are still the
responsibility of the partner. The additional business can be developed, expanded, and managed
by establishing new management team in Huabo Group. Sometimes, this kind of business can
also be operated by the suitable partner selected by the Group. Partners can obtain fixed returns
from Huabo Group every year, and they also have great chances to become senior executives
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
107
of the Group.
Different from the traditional way of introducing talents with high salary, Partners Program
assign company operations to its partners, increase talents commitment to a large extent and
broadening channels to attract talents. With this program, the core enterprise competitiveness
will be enhanced. In conclusion, by implementing the Partners Program, Huabo Group can
promote the management of its human capital, maximize the value of human resources, and
achieve alignment of corporate strategy and human resources management in recruitment
regard.
6.2.3 Employee training and development: conducting specialized trainings and
broadening promotion ladders
Through various learning and training programs, the Group enhances management
capabilities of managers in human resource department; this will be helpful to facilitate the role
transformation of the human resources managers and promote a better alignment of corporate
strategy and human resources management. Therefore, establishing and perfecting the Group’s
training mechanism, systematically training employees in human resource department, as well
as strengthening their knowledge of business operations are the primary tasks in the role
transformation of human resources management. And these are also necessary conditions for
human resource management to be the Group’s competitive advantage.
Human resources management is closely related to corporate strategic management, and
they are mutually reinforcing. For employees, they not only need professional knowledge to
enhance their capabilities but also should possess a broad range of knowledge as well as
strategic thinking. Employees can meet these requirements by taking effort from the following
aspects.
(1) Participate in internal training within the company; in addition to participating in
learning and training programs organized by the human resource department, employees also
need to attend the professional training program in sales department and other departments.
This will help employees understand the Group’s business strategy as well as its strategic
objectives and business development prospects and more importantly the business activities of
other departments. Through attending these programs, employees are also able to constantly
enrich their knowledge, and eventually become a high-quality talent. Apart from learning and
training programs, Huabo also holds the experience exchange meetings. The advanced
employees pass on their work experience to new employees through these meetings. This is
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
108
helpful to improve the internal cohesion of the Group while improving work efficiency.
(2) Attend professional training outside the Group. On September 29, 2016, Huabo signed
a "College-Enterprise Cooperation Agreement" with Chongqing Pharmaceutical College and
"Huabo College” was created. In addition to participating in the training program organized by
the Group, employees also broaden their horizons and improve their capabilities through
external training program.
(3) Enhance the ability of independent learning; Employees' independent learning includes
but not limited to these aspects: actively understand the product of the company through product
manuals; voluntarily focus on national and industry policies to make themselves be familiar
with external industry environment changes; learn to analyze current industrial market and
forecast future market prospect. In conclusion, it is necessary for the Group to emphasize the
professional development of its employees. Huabo Pharmaceutical Headquarters and its
subordinate subsidiaries as well as its retail pharmacies need to set up special positions and
responsible persons to take charge of employee training and development. The Group still needs
to increase its training programs for its employees and encourage them to continue their
education and self-development learning. At the same time, it should also provide assistance
for employees to achieve personal development by challenging tasks and promotion
opportunities.
Regarding promotions, first of all, the promotion decision should be changed from basing
on leaders’ personal opinion on particular employee to employees’ performance and ability.
Second, in order to creating more promotion ladders for employees in Huabo Group, the
company should encourage rotations and increase the interdepartmental promotion
opportunities by establishing policy and practices to encourage and promote job rotation in
different positions, departments and subsidiaries. These efforts help the Group facilitates
interdepartmental job rotation of employees. In this way, talents can get promotion easily in
another department when they have no chance of promotion in their own department. This
mechanism also encourages employees’ enthusiasm and promotes the systematic integration of
enterprise's talents. Furthermore, it also helps to solve the problem of imbalanced talent
distribution, optimize human resources allocation and promote the long-term development of
the Group.
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6.2.4 Performance appraisal: establishment of comprehensive performance appraisal
system
First of all, the role of the performance appraisal system established by Huabo Group
should be brought into full play. And it should be strategic-oriented as well as result-oriented
with specific indicators like per capita profits, and economy value added. And it should also
adapt to the business objectives of Huabo Group. In addition, the Group also needs to improve
performance appraisal methods. And the assessment process should be standardized. The
comprehensive performance appraisal system constructed by Huabo Group should include goal
design, process guidance and result feedback.
In the process of performance appraisal, the human resources department and line
managers must enhance the communication on performance appraisal; executive departments
need to strengthen exchanges on assessment results to ensure that the assessment method is
reasonable, the assessment process is transparent, and the assessment results are fair. After
performance appraisal, department heads need to discuss the evaluation results with employees
face to face. Assessing employees is not the purpose of performance appraisal. Only when
employees and enterprises fully understand the results of performance appraisal through
frequent communication, will they agree on the direction of future improvement and the
employees will then work toward company’s goal. The assessment results resulted from such
performance appraisal process will be effective to improve employees' future performance.
Finally, strengthen the application of assessment results. Apart from being linked with
compensation and benefit, employee performance appraisal results are also combined with
employee promotion, training and career development, so the Group can realize performance
enhancement and improve employees’ enthusiasm.
6.2.5 Compensation and incentives: perfecting compensation and motivation system and
cultivating talents
Most companies believe that talent is the source of competitiveness and talents in a
company make the company play a leading role in future market competition. However, during
interviews and investigations, this study finds out that employees of Huabo Group are not
satisfied with its current salary level as well as the current compensation and motivation system.
At present, Huabo Group needs to improve its compensation and motivation system.
First, The Group needs to treat talent as capital owners who enjoy equal status with
company's owner in order to achieve interest balancing. The company must adopt a scientific
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
110
incentive mechanism to make Huabo Group more attractive in market competition and its
talents can be materially satisfied. In addition, suitable career development plan is conducive
to attract and retain talents. The achievement of enterprise interest together with employee
interest not only helps company to achieve its business objective, but also enables its talents to
play a better role, thus, achieve a win-win situation. In addition, enterprise manager should
know their employees’ need, and they need to make effort to conduct employee assessment and
increase incentive efficiently. Furthermore, compensation should be based on employees’
assessment results to make the compensation system transparent and fair.
Material incentive is an effective way for enterprises to attract talents while corporate
culture is the soft power to retain talents. A good corporate culture is beneficial to enhancing
the enterprise cohesion. Sometimes, corporate culture is even more effective than material
incentives. And a system’s survival in a company needs it to be integrated with enterprise values
and cultural preferences. A fair cultural atmosphere can promote the establishment of internal
promotion mechanisms. It can be said that corporate culture is the soul of an enterprise. When
the external market changes drastically, excellent corporate culture can inspire and unify
employees. By associating employees' career development plan with enterprise development,
company can attract outside talents while retain the internal talents. Therefore, apart from
material motivation, the Group should also cultivate corporate culture which is beneficial to the
mutual development of the company and its employees.
6.3 Summary
Human resources are the most proactive, innovative, and creative resources among the
disposable resources possessed by a company. In order to achieve companies’ strategic goals,
managers need to manage and utilize human resources effectively. In conclusion, efforts must
be made in the following five aspects:
First, pay special attention to human resources planning; analyze human resources supply
and demand of the company to make sure that it can get high-quality talents; establish a standard
human resources management policy and supervise its implementation; based on human
resources management planning, try to achieve strategic human resources management in terms
of talent selection, cultivation, utilization, and retention; Hire senior executives by internal
selection, promotion and external recruitment; encourage the human resources management
innovation. As for the human resources recruitment and management in subsidiaries, the Group
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
111
should formulate guiding policies instead of simply intervening in the formulation of human
resources policies in its subsidiaries. Huabo Group can provide funds and technical support for
its subsidiaries or pharmacies in terms of employee recruitment, training and management.
After helping the subsidiary companies to recruit, develop and replace their human resources,
the Group collaborated with other relevant departments conducts reasonable evaluations on
remuneration and performance appraisal system of its subsidiaries.
Second, implement the talent introduction mechanism to improve the company's core
competitiveness. Talents do not play a role well when they are misplaced. Only by putting
talents to suitable positions based on their specialties, can they become the company’s most
important assets. Huabo Group is in a rapid growth period and it urgently needs advanced,
professional talents. Besides, the Group also needs to increase capital input on recruitment. The
interview process should be standardized and the professionalism of the interviewer should be
improved. The Group should also focus on introducing talents who have abundant market
experience and familiar with market operations as well as local market environment. This talent
introduction strategy is usually adopted in the development stage of company.
Third, conduct specialized training and broaden promotion ladders; through various
learning and training programs, the Group enhances strategic management capabilities of
managers in human resource department; this will be helpful to facilitate the role transformation
of the human resources managers and promote a better alignment of corporate strategy and
human resources management. Correspondingly, the Group should emphasize the professional
development and growth of its current employees. In particular, Huabo Headquarters and its
subordinate subsidiaries as well as its retail pharmacies need to set up special positions and
responsible persons to take charge of employee training and development. The Group still needs
to increase its training programs for its employees and encourages them to continue their
education and self-development learning. At the same time, it should also provide assistance
for employees to achieve development by setting positions, providing funds and creating
opportunities. The promotion of employees should change from based on leaders’ appreciation
to that based on employees’ performance and ability. In addition, increasing the
interdepartmental development ladders will help the Group optimize its human resources
allocation and thus promote its development.
The fourth is to establish a comprehensive performance appraisal system. This requires
the Group to establish a position management system, identify position management standards
and give out operation guidelines based on the dynamic environment in which it is located.
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
112
First, according to the principle of setting jobs by duties, optimize job settings, standardize job
titles, and clearly define job standards and requirements. Secondly, under the premise of a clear
division of responsibilities, the Group provides detailed descriptions on job duties and
capability requirements, and promulgates job descriptions that effectively reflect job duties.
Ultimately, the Group strives to form a common understanding among employees at all levels
regarding jobs duties and facilitates the communication on jobs duties among employees.
Establish a position management system that reflects the contributions of employees; this
system not only enables the Group to measure the employees’ contribution, but also provide
basis for its employees’ compensation and payment. Finally, establish a clear and standard
organizational structure so that employees can quickly understand how the organization works
as well as what kind of employees are employed and remunerated. Through establishment of
scientific position management system and reasonable performance appraisal system, the
Group will achieve its strategic goals easily. At the same time, establishing such systems will
also help to improve the Group’s management skills and core capabilities.
Finally, Huabo Group needs to perfect its compensation and motivation system as well as
cultivate its talents. On one hand, the Group should increase capital input in human resources
management, conduct employee assessment efficiently and increase motivation. Furthermore,
compensation and employee assessment should be combined in order to make the compensation
system transparent and fair. On the other hand, the Group should also emphasize spiritual
incentives and cultivate cooperate culture which is in favor of the company development as
well as its employee development.
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113
Chapter 7: Conclusion
7.1 Conclusion
This study employ both qualitative (interview) and quantitative (questionnaire) to examine
the strategy orientation and the alignment of human resources management with its strategy
typology in Huabo Group, a growing pharmaceutical distribution firm in China. Guided by the
framework proposed by Miles and Snow (1984), the study identify the strategy typology in a
dynamic, complex and hostile environment and examine the alignment issues of the company’s
human resources management with the strategy type. This chapter discusses theoretical
significance and practical implication of doing research on Huabo Group’s strategy and human
resources management alignment.
Through literature analysis, this study finds that the existing research mainly focuses on
human resources or corporate strategy separately. Tan (1996) found that regulatory hostility,
dynamism and complexity led to strategies characterized by innovativeness, proactiveness, and
risk-taking. Therefore, research on alignment of human resource and corporate strategy is still
rare. Furthermore, studies on alignment of human resources and corporate strategy in
pharmaceutical distribution industry are in urgent want. This situation entitled this research of
how human resources fit in corporate strategy in the context of pharmaceutical reform in China.
Moreover, China is currently adjusting its economic structure. Chinese firms are facing rapidly
changing external environment. Chinese pharmaceutical corporations are also faced with
competitive pressures during such economic transition period. Their survival and development
need to deal with many difficulties and challenges. These conditions put forward higher
requirements on their strategic management. Therefore, for these Chinese pharmaceutical
corporations, proactive and instructive strategic management is of particular importance. These
corporations must be good at seizing external environment opportunities and deal with external
threats effectively. On the other hand, they also need to increase core competency and improve
competitive advantage through the effective integration of internal resources.
Research on alignment of corporate strategy and human resources management has also
practical significance. The perfect alignment of corporate strategy and human resources strategy
is the most important factor contributing to corporation’s sustained competitiveness. Therefore,
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
114
corporation leaders and managers should be able to design an appropriate corporate strategy
which matches well with its human resources management. And they also need to choose the
best human resources management method based on the overall development strategy of the
corporate. For pharmaceutical distribution corporations, possessing a large quantity of talents
is necessary for their development. And introducing high-quality talents and realizing the
reasonable flow of these talents is of particular importance. Besides, in their strategy planning
and operation management, pharmaceutical distribution firms need to identify their human
resources management goals, select appropriate management method and chose proper
implementation plans. With these actions, they can create and maintain their competitive
advantages to achieve success in a crowded market. Therefore, research on alignment of human
resources management and corporate strategy will not only promote the development of Huabo
Group but also provide valuable reference for other enterprises.
After investigating the status quo of Huabo Group's strategy and human resources
management as well as identifying the gap between Huabo Group's existing human resources
management and its strategic development requirements, this study uses interviews and
questionnaires to conduct a comprehensive research on alignment of Huabo Group’s corporate
strategy and human resources management. The following conclusions were drawn:
(1) In a highly dynamic, complex and hostile industry environment like the pharmaceutical
distribution industry in this study, a logical and rational strategic optional is to pursue a strategy
with innovativeness, proactiveness and expansion. In the pharmaceutical distribution industry
that is highly regulated and rapidly changing, Huabo Group has established expansion strategy
to develop new market and new product through M & A and strategic alliance for sustainable
development. This strategy is also made to enhance the Group’s core competence and to
maintain its competitive advantages. Huabo Group explores markets for drug supply in
hospitals vigorously in recent years and has obtained certain achievements. It establishes
cooperative relationship for drug supply with more than 20 hospitals in Chongqing and actively
integrates resources from its retail pharmacies to make the company bigger and stronger. The
successful development of Huabo Group in recent years shows that the Group has correct
strategic orientation; besides, the Group has objectively understand its characteristics,
development goals as well as its external environment. Through data and information analysis
of interviews and questionnaires, this study concludes that under the current external industry
environment, the business strategy of Huabo Group is prospector type.
(2) The study reveals and discusses several issues in the alignment of human resource
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
115
management with strategy, which provide insights on the challenges of growing private
enterprises in emerging market like China. First of all, these firms face “duel pressures” to
survive and grow in the rapidly changing market as on the one hand, they need to adjust
organization strategy to adapt to the environment, and on the other hand they need to align the
internal human resource management to align and support the organization strategy. Moreover,
constrained by resources, they may have difficulty to align human resource management to the
pursuing strategy. For example, in the case of Huabo, acquiring or “buying” human resource in
the labor market is a basic strategy to align and support the prospector strategy for market and
product development. But Huabo at least currently does not have the professional HR specialist
to identify, assess and recruit the right candidate, not mention the financial resources that
constrain its investment in recruitment campaign and its level of compensation and benefits.
However, the results of this study do provide guideline for similar enterprises to better manage
their limited resources.
(3) This study presents the changing roles of human resource management department in
small and medium sized company and the challenges of managing human resources in private
enterprise in China. From the establishment of the corporation in 2002 to 2017 when this study
was conducted, Huabo Group experience the three development stages of its human resources
department, that is non-existence of human resource concept, personnel and administration, and
specialized HR function . Apparently this is a natural result of the company’s development.
This study suggest despite the fact that the company has established wide range of human
resources management practices including recruitment, training programs, performance
appraisal, and compensation incentive systems, the human resource management department
of Huabo did not play the roles of “strategic partner” and “change agent”. However, following
this study, now the Group has a profound understanding of the importance of human resource
management and its human resource management may be further improved, as the human
resource management department need to play the role of strategic partners and change agents
to facilitate the implementation of the prospector strategy.
(4) This study proposes improvements in five aspects to promote the alignment of Huabo
Group's human resources management and its strategy. First, Huabo Group must pay special
attention to the design of a suitable human resources management system and its leadership’s
awareness on alignment of corporate strategy and human resources management should be
raised. Establish a standard human resources management policy and supervise its
implementation; based on human resources management planning, try to achieve strategic
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
116
human resources management in terms of talent selection, cultivation, utilization, and retention.
Second, continuously implement the talent introduction mechanism to improve the Group's core
competitiveness. In particular, the Group needs to focus on introducing talents who have
abundant experience and familiar with business as well as local market environment. This talent
introduction strategy plays an important role in the development of the Group. Third, conduct
specialized training and create more promotion ladders; enhance the strategic management
capabilities of managers in human resource department with various learning and training
programs; establish a comprehensive performance appraisal system; establish standard
enterprise position management system in Huabo Group under dynamic industry environment.
Finally, perfect its compensation incentive system and cultivate its talents; the Group should
cultivate its corporate culture that is beneficial to the mutual development of the company and
its employees. The Group should also emphasize cultural incentives as well as human resources
capital investment.
7.2 Contribution and implication
There have been limited studies on the relationship between organization strategy and its
human resources management.
Moreover, most existing researches on strategy and human resources management
alignment are sampled in developed countries while the study in emerging economy is under
researched. This study employs both qualitative and quantitative method to investigate the
alignment of human resource management with organization strategy with a focus on a single
case. The study enriches literature in the ways. First of all, the target of a pharmaceutical
distribution firm in emerging economy from China adds to the literature with evidence from a
less developed economy. Second, despite some scholars (e.g. Tan, 1994, 1996, 2002) have
examined the alignment topic in China with quantitative methods, this study´s focus on a single
company provides much in-depth and rich understanding of alignment between strategy and
human resources, thus complementing and further explaining the earlier research findings (eg..
Tan, 2002).
Practically, through the analysis of Huabo Group's current corporate strategy and human
resources management, this study first examine, identify and rationalize the organization
strategy of Huabo Group in current industry environment; explore and discuss the gap
between its current human resource management and its current strategic orientation. With that,
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
117
some suggestions have been put forward. In this study, through interviews and questionnaires,
many employees of Huabo begin to understand its strategic business management. This is, on
one hand, helpful to improve their work enthusiasm and ability. On the other hand, this also
contributes to deepening employees' understanding on corporate strategy of Huabo Group. In
addition, there is little research on alignment of human resources management and organization
strategy in the pharmaceutical industry. Therefore, both the framework and methodology this
study employ as well as the practical suggestions it proposes may provide valuable reference
and implication for similar companies to cope with the challenges of strategy alignment with
human resource management.
7.3 Research limitation and prospect
This research has the following limitations: First of all, it focuses on one single case which
helps to understand the subject more in-depth, but the result should be interpreted with caution
due to limited generalizability. In addition, employees’ may have bias in expressing their
opinion in the data collection process. This study collected data by interviewing internal
employees of Huabo Group or by letting staff fill in questionnaire, therefore, when employees
gave their answers to some questions, they cannot be absolutely objective due to consideration
on departmental interests or personal bias. So the data is not absolute objective. Second, due to
the complexity of measuring the industry environment, this study did not have quantitative data
to measure the environment which is a key factor influencing organization strategy. The future
study may collect data from regulator, suppliers, customers and other sources to examine the
environment dimensions. Finally, the theoretical framework adopted in this study originates
from the 1980s. It does not include intangible variables such as corporate culture into human
resources management, nor does it consider the actual situation of China and Chongqing. This
framework cannot completely solve the problem of Chinese corporations. For example, in terms
of recruitment and incentives, in this case, it is necessary to emphasize the alignment of
employees' individual values with corporate culture and corporate strategy. However, Miles and
Snow's theoretical framework does not take this into consideration, and improvements can be
made in these aspects in future researches.
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
119
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Appendix 1 Interview Outline of HR Management
1. Senior managers (refer to the Group Manager, Deputy Manager, and Financial
Manager)
1. Overall condition
1) What are the strategic goal and strategic orientation of Huabo Group now?
What strategic revolutions have Huabo Group gone through since its establishment?
What kind of strategy is adopted by Huabo Group now?
Do you think what kind of strategy is adopted by Huabo Group, defenders, prospectors or
analyzers?
Interpretations on these three strategic types:
Defender sets competitive price and provides high-quality products as well as good services to
maintain its competitiveness. Instead of being influenced by the trend out of its market segments,
it achieves development through market penetration and limited product development.
Prospector focuses on expanding the market demand from the company, maintaining and
further expanding its market share.
Analyzer aims to minimize the risk and maximize the enterprise profits. It mainly seeks for
survival through copying Prospector’s success.
2) What are the primary businesses in Huabo Group now?
3) What revolution has Huabo Group experienced on Human Resource Management?
2. Human resources planning
4) In view of Huabo Group’s strategy, what measures do you think the HR Department should
take to improve the Group’s development?
5) Do you think the current HR Management matches with the Group’s business strategy? If
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not, what are the main problems?
6) What adjustments should be made next step for HR Department to fit in the development
strategy of pharmaceutical industry?
3. Organization structure
7) Do you think the function of the current HR Department meets the requirement of the
pharmaceutical industry?
8) Is it necessary to do some adjustments on Huabo Group’s organizational structure to make it
fit in its pharmaceutical business development strategy?
4. Staff recruitment
9) With current development strategy of pharmaceutical business, which aspect should be
focused on by Huabo Group next step in its recruitment?
10) What kind of core talents do you think are needed in Huabo Group’s current and future
development? And what should be done to attract, motivate and retain these talents?
5. Staff training
11) What do you think of Huabo Group’s current training mechanism, such as the training
investment, the training results and so forth?
12) In view of the pharmaceutical business development strategy of Huabo Group, which
aspects do you think should be further improved on staff training?
6. Performance appraisal
13) What works should be done for Huabo Group to improve its performance appraisal system
so as to fit in its pharmaceutical business development?
7. Compensation and benefits
14) What parts are included in Huabo Group’s current compensation and benefits mechanism?
15) What is the proportion of the fixed salary and variable compensation in Huabo Group’s
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management board and business managers?
Does the salary incentive mechanism work well?
8. Staff promotion
16) Is it necessary to improve the staff promotion of Huabo Group?
9. Organization culture
17) What are your proposals on cultivating the corporate culture?
2. Interview outline of the HR and administration director
1. Overall condition
1) What are the current strategies of Huabo Group? (Including its overall strategy, business
strategy and strategic goal)
Which strategy do you think is adopted by the Group, defenders, prospectors or analyzers?
Defender sets competitive price and provides high-quality products as well as services to
maintain its competitiveness. Instead of being influenced by the trend out of its market segments,
it achieves development through market penetration and limited product development.
Prospector focuses on expanding the market demand from a company, maintaining and further
expanding its market shares.
Analyzer aims to minimize the risk and maximize the enterprise profits. Its survival mainly
depends on copying Prospector’s success.
2. Human resource designing
2) What works should be done by HR Department to fit in Huabo Group’s strategic goal?
3) Do you think the current HR management fits in Huabo Group’s pharmaceutical business
development strategy? If not, which aspects do you think can be improved?
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134
4) What adjustments should be made next step on HR designing to fit in Huabo Group’s
pharmaceutical business development strategy?
3. Organization structure
5) Do you think the function of HR department fits in Huabo Group’s pharmaceutical industry
development? Is there any place left to be improved?
6) Has Huabo Group’s HR Department participated in the draft of the group’s strategy?
7) Has Huabo Group's HR Department been communicated with other departments regularly?
How is the communication work carried out?
8) Is it necessary to do some adjustments on Huabo Group’s organizational structure to match
with its pharmaceutical business development strategy?
4. Staff recruitment
9) Has Huabo Group's staff turnover rate been high in the past two years?
10) Does Huabo Group's recruitment work well? Is there a clear job description and work
responsibility?
11) Based on the current pharmaceutical business development strategy, what aspects should
be focused on in Huabo Group’s further recruitment work next step?
12) What kind of core talents do you think are needed in Huabo Group’s current and future
development? And what should be done to attract, motivate and retain these talents?
13) At present, what categories are the talents withdrawal mechanisms divided into? Is there a
place for improvement?
5. Staff training
14) Is there a high investment going into the staff training program? And how much is it now?
15) What are the staff training programs adopted by Huabo Group now?
16) In view of the current pharmaceutical business development strategy, which aspects do you
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135
think can be improved on the staff training system?
6. Performance appraisal
17) How does Huabo Group carry out its current performance management?
18) Which aspects can be improved on Huabo Group’s performance appraisal system to make
it match with its pharmaceutical business development?
7. Compensation and benefits
19) How do you appraise of Huabo Group’s compensation system?
20) Compared with its peer companies or other companies in the market, is Huabo Group's
compensation standard a competitive one?
What is the proportion of the fixed salary and variable compensation in Huabo Group’s
management board and business managers? Does the salary incentive mechanism work?
22) How to increase the leverage effect of salary on business? (Annotation: Salary leverage
refers to a measure which is taken by the company to regulate and control the remuneration of
workers when following the principle of distribution according to work.)
8. Staff promotion
23) Is the staff promotion based on the result of performance appraisal system? From which
aspect can performance appraisal system be improved?
24) Does the Huabo Group provide guidance for the staff’s career planning?
25) What are Huabo Group's staff promotion channels?
9. Other interview content
26) Please introduce the history of Huabo Group's human resources management.
3. Interview outline of managers in business department: including the purchasing
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136
manager, logistics manager, marketing manager and financial manager.
1. Overall condition
1) Do you know the current strategies of Huabo Group? (Including the overall strategy, business
strategy and strategic goal)
What kind of strategy does Huabo Group adopt, defenders, prospectors or analyzers?
Interpretations on these three strategies:
Defender sets competitive price and provides high-quality products as well as services to
maintain its competitiveness. Instead of being influenced by the trend out of its market segments,
it achieves development through market penetration and limited product development.
Prospector focuses on expand the market demand in the company, maintaining and further
expanding its market shares.
Analyzer aims to minimize the risk and maximize the enterprise profits. Its survival mainly
depends on copying Prospector’s success.
2) Are you familiar with Huabo Group’s main business development?
2. Human resources planning
3) Do you think the current staff condition in HR Department meets the requirement of Huabo
Group’s strategic development?
3. Organizational structure
4) Do you think Huabo Group’s current organizational structure is reasonable?
5) How do you think of the work efficiency of your department? Is there any place needed to
be improved?
6) Has your department communicated with HR department regularly?
Will the HR department make reasonable recommendations to your department on business
optimization and work efficiency improvement?
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137
4. Recruitment
7) How does the Huabo Group's recruitment plan work? Does the HR department have a timely
response to the talent demand in other departments?
8) Do you think Huabo Group’s talent withdrawal mechanism is reasonable?
5. Staff training
9) How does your department develop staff training programs?
10) What deficiencies do you think the current staff training system has and which places can
be improved?
6. Performance appraisal
11) Do you think the current performance appraisal system is closely related to staff
performance, and what is the role of the performance appraisal result?
13) Will a sufficient communication be carried out with the staff about the result of your
department's performance assessment?
14) In terms of promoting business development, do you think what modules of the current
performance assessment system should be improved?
7. Compensation and benefits
15) What do you think of Huabo Group’s compensation system?
16) What is the proportion of the basic salary and flexible compensation about Huabo Group’s
basic level workers?
Does the salary incentive mechanism work?
17) Do you think what should be done to increase the leverage effect of salary on business?
(Annotation: Salary leverage refers to a measure which is taken by the company to regulate and
control the remuneration of workers when following the principle of distribution according to
work.)
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138
8. Promotion
18) Is the staff promotion based on the result of performance appraisal system now? What are
the requirements for promotion for the staff?
19) Is there a high possibility for staff to transfer between different departments and positions
within Huabo Group? Is there a channel for horizontal exchange and vertical promotion?
20) Does Huabo Group offer guidance for the staff’s career planning now?
21) What is the condition of staff promotion in Huabo Group?
4. Managers of basic level/employee representatives
1. Overall condition
1) Do you have knowledge of Huabo Group’s current strategic goal and strategic orientation?
If you do, through what channels do you understand these?
2) Do you know Huabo Group’s current major business?
2. Human resources planning
3) Do you think the current employees of Huabo Group are able to meet its development
requirements?
3. Organization structure
4) What do you think of the efficiency of Group’s various departments? Is the business process
a simple or complex one?
5) Do you understand the responsibilities of your job and is there a clear job description?
4. Recruitment
6) At present, how does the talents withdrawal mechanism work in Huabo Group? Is there any
difference in the elimination mechanism between regular employees and temporary employees
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
139
who are in their internship?
5. Staff training
7) Do you think which aspects can be improved on current staff training system?
8) Does Huabo Group currently set any incentives for CFA, CPA and other certification exams?
Does it support academic education? If it has, are you willing to participate in these exams or
study?
6. Performance appraisal
9) Do you think that the current performance appraisal system truly reflects personal ability and
workload?
10) In your opinion, is there any improvement needed to be done in the current performance
appraisal system and how can it be improved?
11) Do you know the performance appraisal process and how do you know the results?
7. Compensation and benefits
12) How do you appraise of the compensation system in Huabo Group?
13) Do you think your income has advantages over employees in the same industry?
8. Promotion
14) Do you think staff promotion is determined by the result of performance appraisal? And
what do you think are the requirements for staff to get promoted?
15) What’s the possibility for employees to transfer between different departments and
positions within Huabo Group?
16) Has Huabo Group made suggestions on staff’s career planning currently?
17) Has Huabo Group offered you advice on your personal career planning?
18) Based on your working experience in Huabo, is there any place for improvement on the
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140
promotion ladders of Huabo Group?
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141
Appendix 2 Statistics on Questionnaire Survey of HR Managers
Table 1 Descriptive Statistics on Staff Recruitment
Obs Min Max Mean SD
Staff Recruitment 1 102 1 5 3.41 989
Staff Recruitment 2 102 5 7 6.32 760
Staff Recruitment 3 102 3 7 5.24 1,153
Staff Recruitment 4 102 3 7 5.41 927
Staff Recruitment 1: Huabo Group will arrange written examinations when it recruits new
employees.
Staff Recruitment 2: Huabo Group will have interviews in its recruitment.
Staff Recruitment 3: Huabo Group will give priority to the recruitment of internal employees
when it has job vacancies.
Staff Recruitment 4: Clear descriptions of jobs will be made in Huabo Group’s recruitment.
Table 2 Descriptive Statistics on Staff Training
Obs Min Max Mean SD
Staff Training 1 102 1 5 3.96 .994
Staff Training 2 102 1 6 4.45 1.340
Staff Training 3 102 3 7 5.39 1.401
Staff Training 4 102 3 7 5.72 1.057
Staff Training 5 102 4 7 5.51 .805
Staff Training 1: Huabo Group provides its staff with abundant training programs.
Staff Training 2: The employees of Huabo Group usually need to participate in training
programs in every 1 to 2 years.
Staff Training 3: Huabo Group provides formal training for newly recruited staff and teaches
them working skills
Staff Training 4: Huabo Group offers promotion opportunities for those competent staff.
Staff Training 5: Huabo Group provides formal training for its staff to increase their chances
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
142
of promotion in the company.
Table 3 Descriptive Statistics on Staff Assessment
Obs Min Max Mean SD
Staff Assessment 1 102 3 7 5.67 .947
Staff Assessment 2 102 3 7 5.68 .846
Staff Assessment 3 102 3 7 5.43 1.104
Staff Assessment 1: Huabo Group has a formal performance appraisal system.
Staff Assessment 2: Huabo Group’s performance appraisal is based on objective data.
Staff Assessment 3: Huabo Group will carry out rewards and penalties according to the result
of the performance appraisal.
Table 4 Descriptive Statistics on Staff Remuneration
Obs Min Max Mean SD
Staff Remuneration 1 102 3 6 4.80 .975
Staff Remuneration 2 102 3 6 4.63 1.062
Staff Remuneration 3 102 2 5 3.71 .726
Staff Remuneration 1: Huabo Group’s incentive system encourages its staff to achieve
corporate goals.
Staff Remuneration 2: Huabo Group always gives appropriate rewards to those who made
contributions to its development.
Staff Remuneration 3: Huabo Group has higher remuneration and benefits than other
companies in the same industry.
Table 5 Descriptive Statistics on Staff Relationship
Obs Min Max Mean SD
Staff Relationship 1 102 2 7 4.88 1.205
Staff Relationship 2 102 4 7 5.52 .972
Staff Relationship 3 102 3 6 4.71 1.001
Staff Relationship 4 102 4 7 5.94 .865
Staff Relationship 1: When dealing with problems, Huabo Group will listen to the opinions of
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
143
the management team members before making decisions.
Staff Relationship 2: Huabo Group encourages its staff team to solve their problems by
themselves as much as possible.
Staff Relationship 3: In the past six months, Huabo Group had made some adjustments on
practices based on the opinions of its staff.
Staff Relationship 4: Huabo Group regularly releases its corporate plan and reports it to its
staff.
Table 6 Descriptive Statistics on Staff Satisfaction
Obs Min Max Mean SD
Staff Satisfaction 1 102 3 5 4.32 .720
Staff Satisfaction 2 102 3 7 5.16 .982
Staff Satisfaction 3 102 2 6 4.28 1.057
Staff Satisfaction 1: I would like to recommend my friends to work at Huabo.
Staff Satisfaction 2: On the whole, I am very satisfied with my work at Huabo.
Staff Satisfaction 3: I’m willing to stay in Huabo instead of getting another job outside Huabo
with higher salary.
Table 7 Descriptive Statistics on Staff Belongings
Obs Min Max Mean SD
Staff Belongings 1 102 5 7 6.72 .569
Staff Belongings 2 102 4 7 5.87 .992
Staff Belongings 3 102 3 7 5.21 .905
Staff Belongings 1: I’m willing to work harder to help Huabo Group succeed.
Staff Belongings 2: I’m proud of working for Huabo.
Staff Belongings 3: I have a strong sense of belongings in Huabo.
Aligning Strategy Typology and Human Resource Management in a Transitional Environment
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Table 8 Descriptive Statistics on Staff Loyalty
Obs Min Max Mean SD
Staff Loyalty 1 102 4 7 5.56 1.049
Staff Loyalty 2 102 5 7 6.06 .701
Staff Loyalty 3 102 3 7 6.17 .598
Staff Loyalty 1: I plan to continue my career in Huabo.
Staff Loyalty 2: I will not leave Huabo at least in the next 12 months.
Staff Loyalty 3: I will not consider looking for another job in the next six months.